The British cost of living crisis seems to be escalating almost daily. According to experts, we are facing the biggest drop in living standards since the 1970s. Announcing a phase-out of Russian oil imports, Boris Johnson spoke of “dark days ahead” – as if the days we live in weren’t dark enough.
This crisis cannot be blamed solely on Russia’s brutal invasion of Ukraine. The return of high inflation may be due to short-term supply shocks. But the things that make this a crisis are decades in the making.
In the 1970s, “stagflation” – low growth coupled with high inflation – ended three decades of rising living standards. Now comes a lost decade. real wages are no higher than 2008when the financial crisis hit. Millions of households were already struggling to make ends meet. It doesn’t take much to put them in the red.
It’s not just wages that have been depressed: just living in the UK has become prohibitively expensive. This is partly because we’ve gone further than almost anywhere else in turning essential goods and services into financial assets. Since people literally can’t live without them, owning these assets is a reliable way to do it fetch huge rents doing very little. By placing the means of decent living in the hands of private gatekeepers whose sole concern is to maximize their rents, we have built an economy that systematically drives up costs to consumers while driving down wages.
The most obvious and egregious example is housing. When rising housing costs taken into account, the standard of living of most working-age households has been falling since 2002. Real estate prices have risen 20% since the beginning of the pandemic and are at record highs both in absolute terms and relative to earnings. As a result, more and more people remain trapped in the private rental sector, where a third of their income is devoured by the rent alone. Average rents have increased by 8.6% over the past year and are now over £1,000 a month. This comes on top of a decade in which rents have already been rising much faster than wages. Of course, tenants’ losses are landlords’ gains. Buy-to-let investors have been drawn to these outsized returns swallowed a significant proportion of the available housing in recent years.
We see the same patterns elsewhere, from care to water, from energy to transportation. The UK childcare system is the third most expensive in the world: bad news for parents, but good news for them Private Equity Investors buy daycare. Meanwhile approx £1 per £10 Spending on welfare is being pulled out of the system by highly financial corporations that own and control assets within it – adding to the visual delights 30% cost increase for self-financed care since 2012. Train prices have increased by 20% in real terms since privatization and water bills 40% – with excess profits estimated to inflate the latter £2.3 billion a year. Now known as the Common Wealth think tank mention, thatthe web’s monopolists make 40% profit margins and overpay £1 billion per year to shareholders.
The Governor of the Bank of England, Andrew Bailey, recently warned of the threat of inflation from rising wages. The specter behind the governor’s intervention was the “wage-price spiral” – with rising wages driving prices higher and nobody better off. This plays into the idea beloved by mainstream economists that the interests of workers and consumers are essentially a seesaw: for one to win, the other must lose. But that conveniently ignores the third player in the equation: the owners. In the UK today, owners are the only group with real power to set both wages and prices. In fact, that power has been systematically vested in them through decades of deregulation and union decline.
So why was Bailey ignoring her? Why, the FT commenter Martin Sandbu considered, instead of asking powerful companies to “moderate” their profits, he asked less powerful workers to “moderate” their wage demands. Perhaps, as Sandbu notes, because mainstream economics has a “blind spot” to the power of capital, and correcting it would mean asking uncomfortable questions about “who bears the costs” of rising inflation and who benefits.
Soaring energy costs may have millions of people wondering how to heat their homes, but BP’s CEO has openly boasted that they are turning his company into a “money machine”. BP and Shell profits soared to a combined $32 billion last year, with BP shareholders set to benefit from a $1.5 billion share buyback. Demands for a windfall tax have proved popular because people intuitively understand that these tremendous rewards are undeserved and unjust.
But even companies on the wrong end of rising input costs have significant decision-making powers over who is affected: pass it on to customers by raising prices, or to shareholders by squeezing margins? In the case of supermarkets, as activist Jack Monroe has pointed out, this effectively means the power to decide whether the poorest families can afford to eat. The problem is that the companies making these life-or-death decisions recognize no other duty than to maximize returns to investors. In France, state-owned EDF has saved citizens from the pain of rising energy costs. In the UK, where public ownership has been systematically dismantled, we lack both the democratic levers and the political will to do the same.
In the US, where corporate power is even more concentrated than in the UK, commentators warn that the real danger is not a wage-price spiral but a “profit-price spiral”. US corporate profit margins are a 70 year high, and are up 37% in the past year alone. in the a surveymore than half of the retailers admitted price increases more than their cost increase – with larger companies being the most likely to do so. The inflation narrative provides a convenient smokescreen to boost margins, investors brazenly admit. By doing Words from a Wealth Manager: “What we are really looking for are companies with pricing power. In an inflationary environment, that is the gift that keeps on giving.”
In the face of such brazen greed for profit, calls for slower wage growth are as economically misguided as they are inhumane. Yes, there is a group that has been raking in excessive rewards for decades and is now tightening its belts in the face of supply shocks. But they are not ordinary workers. As these red-hot socialists Morgan Stanley recently argued, it is profits that must shrink to absorb the pain of inflation — making up for decades in which capital has increased its share at the expense of workers and consumers alike. Basically, we have to ask ourselves whether Britain’s world’s best privatization experiment has run its course. The staggering sums handed out to investors might have gone unnoticed in better times. Today we literally cannot afford such generosity.
Christine Berry is a writer and researcher based in Manchester
Guardian Newsroom: The cost of living crisis Join Hugh Muir, Richard Partington and Anneliese Dodds MP for a livestream event on the cost of living crisis on Thursday 14 April 2022 at 8pm BST | 9 p.m. CEST | 12 p.m. PDT | 3 p.m. EDT. book tickets here