OIt is an almighty mess in which the British economy finds itself. To name just a few of the stories from this week alone: Inflation jumped to a new 40-year high on Wednesday, and Bank of England Governor Andrew Bailey warned it was facing its “the biggest challenge” to keep prices in check, and interest rates could rise next month by half a percentage point. Meanwhile, economists at UBS Investment Bank estimate that 99% of British workers are deteriorating, with their pay not keeping up with the price of food, energy and oil.
The gravity of this moment cannot be overstated. By the end of August, energy watchdog Ofgem will set its new price cap for fuel bills. Based on current market trends, the average annual household energy bill limit is likely to reach £3,244. That’s a 65% increase on the current cap, so a family paying £100 a month will pay £165. Market analysts think it could easily continue to rise in the new year. This will more than swallow up the government’s planned energy grant of £400. And where energy prices go, so do food prices and the cost of other goods and services. For a government that has spent most of this year in crisis management and will emerge in September with a new prime minister and new cabinet, dealing with such an urgent and comprehensive political agenda will be as overwhelming as bailing out a dinghy in a hurricane . The most likely outcome must be that it will sink.
Away from Westminster, an unprecedented number of households will spend this winter choosing between freezing and starving. Many more will have no choice but to cut back on filling up the car and buy school uniforms or diapers. Personal finance expert Martin Lewis isn’t indulging in hyperbole when he warns of civil unrest, families simply not paying their utility bills. After the crash, Britain did not have a “can’t pay, won’t pay” protest similar to the yellow vests of France but – after 15 years of repeated pressure on living standards, the turmoil of Covid and the ignominy in which Westminster is now held – the prospect of one should focus the minds of politicians and decision-makers.
What is so worrying is that the political and business class in the UK seem to be seeing this new situation through the same old scratchy and foggy lenses as always – and suggesting the same old failed solutions. On Threadneedle Street, Mr Bailey warns of a wage-price spiral – even when wages fall. He and his team are raising interest rates, which will do nothing to suppress rising global oil prices but will stifle demand in the UK.
On Whitehall, Treasury ministers and mandarins seem unable to see that what is needed right now is spending, directed first at the UK’s poorest households and then to deliver to the public sectors a fair salary increase. Instead, they are proposing austerity and meager wage increases that will have to be paid for by cutting public services.
As gloomy as all of this sounds, it’s worth remembering one thing: the UK and Europe have been through worse times over the past 100 years, and they’ve done so by breaking with economic and political dogma. This is what we need right now: an end to Thatcherism on autopilot and an active, imaginative, and compassionate state.