This week has had more than its fair share of dire economic news. The prospect of a deep, prolonged recession at a time of soaring prices means that people on the lowest incomes are really going to suffer. Let’s think about what that looks like. It means that people on the lowest incomes will simply not be able to afford the basics that they need to survive. If they don’t face the prospect of losing their home, heating it to an adequate level will be a challenge. Putting food on the table will be tough. Even if they just manage to get by, an unexpected car repair bill, or a washing machine breakdown, could be problems that they can’t cope with. It is quite likely that we will see levels of poverty and suffering that we thought were gone for good.
It’s the most terrifying economic landscape since 2008. And with recession comes the prospect of people losing their jobs. We didn’t have energy and living costs on a steep upward curve then.
I remember only too well the recession of the 1980s. That ITN Jobs round up every Friday showing so many jobs being lost every week. Soaring unemployment as, one by one, our key manufacturing industries crumbled. Remember UB40’s One in Ten?
At that point though the welfare state met more of your living costs if you lost your job. You at least had some chance of getting by. And students could get help with Housing Benefit and could sign on during the long Summer holiday if they couldn’t get a job. Now, benefits are less generous, and woe betide you if you dared have more than two children since 2017 because you won’t be able to claim any Universal Credit for them.
During the 90s recession, I worked in the civil courts in England and it was heartbreaking to see the huge rise in both mortgage and rent possession cases. Each one of those meant that someone was in danger of losing their homes, and many did.
As interest rates rise, so do mortgages. Already high private sector rents are likely to increase as landlords pay more on their buy to let mortgages.
It all seemed terrible back then, but now the prospects and the pressures on incomes are even worse.
Inflation on its own is bad enough but then you have a nearly £1300 rise in energy costs from their already high level from October with the prospect of further rises every three months. If you are on a low income you are more likely to be on a prepayment meter and will find it more difficult to access help while you pay proportionately higher prices.
And all the time prices continue to rise with the Bank of England warning that inflation could hit 13%.
There is not much in the way of respite coming your way. The extra money already announced isn’t going to go very far if you are low paid.
All of this comes at a time when the Conservative Government have been cutting public services for too long. So where councils might have been able to provide much needed help in the past, they are not able to do so now. Advice agencies also need investment so that they can help people find their way through and advocate on their behalf.
Senior Liberal Democrats have been talking about the crisis. Here’s Ed Davey on the news of the energy price cap rise:
This is a disaster for families and pensioners across the country. Not only is the average household facing a nearly £1,300 rise in their energy bills this October, but they’re now facing yet another rise in January.
The government must step in to stop this increase of hardship over the winter.<
Moving to review every quarter should only happen once prices start to fall, ensuring families see cuts in their bills as quickly as possible.”
After the Bank of England’s warning and the interest rate rise yesterday, Sarah Olney said:
The Conservatives’ recession is on the horizon and millions of people will suffer as a result. The British public will never forgive the Conservative party for their disastrous economic policies and tax hikes. They have put party over country time and time again, and sadly it is families and pensioners who are paying the price.Neither Rishi Sunak or Liz Truss have a credible plan to get us out of the mess they’ve created. We must have a general election as soon as the Conservative party contest is over to offer the country the real change it needs.
And where are the outgoing PM and the Chancellor? Very visibly absent on holiday. Layla Moran said:
The Conservatives have crashed the economy and now neither Boris Johnson or Nadhim Zahawi are anywhere to be found. At a time of national crisis we deserve better than these shirkers. Time and again they have been absent in the country’s time of need.
The very least the British people can ask for is a Chancellor and Prime Minister who will explain how they got us into this mess and what the plan is to solve it. We need a general election to finally get rid of this shambolic Conservative government.
When the country is in the middle of a huge storm, turbo charged by the consequences of Brexit, we are going to have to come up with more. Lib Dems have already suggested things like lowering VAT, but we are going to need more radical and wide-ranging ideas if we are going to alleviate the effects on the most vulnerable. The Tories don’t care and Labour have no answers. Ensuring nobody is enslaved by poverty is one of the cornerstones of our values and we have to step up. Richard Flowers had some suggestions the other day. What would you do?
* Caron Lindsay is Editor of Liberal Democrat Voice and blogs at Caron's Musings
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Not just people in lowest incomes – everyonesl suffers fro. Inflation:
Savers whose savings are being eroded:
Employees whose salaries are losing purchasing power.
Employers whose profit margins are cut (that’s the employer’s income/salary)
Investors (pension providers for example) whose returns decrease (meani g that future pensions are smaller in real terms).
We need to speak to all our potential voters especially to those discontented conservatives who (if they switch) will let us win our target seats.
The Times leading article today ends ” It may not win votes among Conservative Party members, but the new prime minister had better come up with serious policies for targeted support or they may not keep the job for long.” Truss and Sunak are forced to address only what matters to their160,000 relatively old, wealthy and right wing members; the spiralling cost of living affecting everyone else is ignored. For the Lib Dems the ball is at their feet and the goal is wide open.
The British public will never forgive the Conservative party for their disastrous economic policies and tax hikes”
That’s a very Liz Truss thing to say. Tax rises are a legitimate way of raising money for government’s and councils but this government has spent the money raised on Brexit, on running senseless elections, on bungs to the DUP, on more elections, on investigations in disasters like Grenfell – not the investigation itself but in refusing to spend money to prevent the disaster they have ended up paying so much more, on flights to Rwanda; has massively overspent whenever trying to do something needed like HS2 to extent that they’ve had to cut line to Bradford and Scotland and never include Wales; and has refused to challenge massive profits of private companies until right at the last finally doing so in such a limp way.
David Cameron and George Osbourne once spoke about fixing roof while sun is shining but they instead destroyed the foundations. A decade or more of failure has led to this scary place about to get worse with Rishi Sunak, Liz Truss or, potentially, Kier Starmer.
I have a deep concern that we are not spelling out to the public what is going on. There are shrill shouts of anguish – but so what – they sound much the same as everybody else who is not a devotee of the Conservative Party.
There needs to be an ongoing information campaign telling the public that the Conservative Party many of them vote for only because they don’t want Labour, is no longer the relatively benign ‘one nation’ party they believed it was and used to believe was acceptable. It has now become a mini Republican Party (in the US sense) with all the baggage and extremism that implies.
In tandem with that, the LDs need to come forward with a coherent plan for the economy, not a series of sound-bites. Furthermore, we need to recognise that what may be a sound course of action for a period of years may not be applicable indefinitely. There may well have to be changes of course as circumstances evolve. Those changes would not be ‘U turns’, not by us or by others. Everyone needs to grow up and acknowledge that management of almost everything is going to be subject to revision. It’s the intent and final objectives that count.
There isn’t going to be a general election unless the new PM thinks they can win it. There is also the salutary warning of 2017 when Mrs May lost her majority in a snap election, despite being a new broom.
Our party really needs to stop hiding its light under a bushel. When will our dear leader start talking about our need to re-engage with the EU with the aim of rejoining instead of worrying about frightening the (Tory) horses. Let’s face it, unless we offer a real and radical alternative to the so-called ‘big’ parties, we don’t deserve to gain seats at all. Being Tory or Labour light will win no prizes. Richard Flowers made an excellent start in showing what a radical Lib Dem Party would offer. For goodness sake, stop listening to ‘Focus’ groups (or whatever else the leadership is doing) and start pushing our radical agenda.
Worth pointing out that Thatcher’s recession of the 1980’s was at a time when oil revenues were flowing to the UK Treasury. While Norway invested a large proportion of its oil revenues in a Sovereign Wealth Fund that now earns Billions each year for the Norwegian people, the UK Government used the revenues from North Sea oil to finance the costs of the recession they caused. This time the UK will face recession while already carrying a Public Sector Deficit and with significant accrued National Debt, without the benefit of large oil revenues or the proceeds of an Oil Fund…this may be very rough.
The value of what we are going to produce this year will be less than last year’s production and 2023’s value may be lower still. It would be good if we had a political party that was prepared to do three things. First face up to the facts and tell the British people that it is highly likely that they will be worse off. Secondly urgently look at issues which are stopping us producing more – top of my list would be the planning policies which make it more difficult to build on-shore wind turbines (the cheapest source of electricity) than houses. There are plenty of other unnecessary barriers to production which are not being mentioned in the Conservative Party’s leadership hustings for example the ban on overseas workers which led to pigs being shot rather than entering the food chain. Thirdly make it clear that the effects of the loss of production is going to have to be borne unequally across the nation with those who cannot take a cut in real income protected and those who can cut back on luxuries or draw down on savings taking a bigger hit. This is likely to lead to need changes to universal credit by increasing rates or further reductions to the taper. This would provide targeted support and thus be better than cuts in VAT on domestic fuel which provides more help to the wealthy than those who are struggling.
Here is an interesting and relevant article on this matter:
https://www.taxresearch.org.uk/Blog/2022/08/05/universal-basic-services-are-the-only-answer-to-the-crisis-we-are-facing/
Here is another:
https://www.taxresearch.org.uk/Blog/2022/08/05/the-bank-of-england-is-setting-us-up-for-an-almighty-economic-crash/
We could also scrap the bank rate and remove excessive money from those with excessive money through taxation which goes into the public purse and not into the banking industry.
Ditto increase green energy and insulation
Work for a settlement between Ukraine and Russia so that affordable Russian gas may be bought.
Trouble is that due to Brexit and the drying up of foreign investment, government borrowing is going through the roof anyway. I read that 2/3 of UK government debt is inflation linked. So the costs of deficit financing go ever higher. That is what is giving Andrew Bailey a nightmare.
So the tax issue is how we cut up an ever smaller cake. Cakeism in reverse.
The inflation we are experiencing comes in two parts. One is the reduction in essential fossil fuel energy supply, which effectively makes us all poorer. The second is excess money in the system from furlough and wasteful government expenditure like track and trace. To reduce the first, we need to use less fossil fuel, and realise that many things (like annual flying holidays) we thought we could afford we can no longer. The second we need to reduce the money in circulation. Raising interest rates is a very indirect way of doing that, as the effect is to -reduce borrowing/ increase savings – cause a recession – people lose their jobs and can’t buy things – more people lose their jobs – less money in circulation. Better to directly reduce the money by increasing income tax – both higher and ordinary rate. And increase universal credit so no-one starves/ loses their home/ freezes.
On the energy front we need several more 3GW nuclear power stations. I have almost never seen our gas fired generation at less than 15GW on Gridwatch, so maybe 7 to cover that & replace the 4.5GW of nuclear going out of service soon. And a major programme of home insulation.
We can maybe survive this if we are genuinely all in it together, but the economy will shrink. It needs honesty and clear sight from our leaders – and I can’t see the Tories providing that.
We need a 21st Century version of Lloyd George’s Yellow Book.
That would include measures to make employment more secure with a higher minimum wage and profit sharing. Investment in building social homes for rent, a not for profit social care service and the introduction of a universal basic income.
Those are long term measures so in the short term a cap on energy price rises, a ban on evictions and rent controls would all help. We also need an answer to the fall in the real value of wages and pensions in the context of wider inflation.
“planning policies which make it more difficult to build on-shore wind turbines (the cheapest source of electricity) than houses.”
I perceive that on-shore wind facilities in UK seem generally to be aimed at building a small number of ‘wind farms’ each with a very large number of turbines.
I wonder if more but smaller wind farms might prove more acceptable? Driving along major routes inFrance it isn’t uncommom to come across a wind farm of 10-12 turbines.
Sometimes circumstances create a brutal reality. The serial incompetence of this government has pitched us into one of those times.
Many people are simply NOT going to get through winter alive if energy prices turn out as currently forecast. And (something which the media is curiously silent about), neither will a great many firms as soaring energy costs render them uneconomic.
Nor can government step in, Covid-style, to subsidise people AND businesses adequately. I haven’t seen any credible figures yet, but they must be huge implying a big drop in tax.
Moreover, any attempt to deficit finance runs a high risk of triggering hyperinflation. The Weimar hyperinflation of 1922/23 started when German’s weak and debt-burdened economy resorted to money printing to pay war reparations. When an instalment of reparations was missed the French occupied the Ruhr which forced the Germans to print yet more money. That, plus the loss of the Ruhr’s productive capacity, led to a complete collapse of the currency.
The parallels are obvious. We have a weak and debt burdened economy that must either print money in the face of a likely collapse in production, earnings, and tax revenues or find a better plan.
So, what’s to be done?
I see only one alternative. However unpalatable, we must accept that Russia has won the war in Ukraine, make peace, and get gas supplies and prices back to normal levels ASAP and well before the weather cools.
We need short, simple messages that will cut through and which people will understand. I’m not saying these alone will solve the crisis but lets be the party that is seen to be talking with clarity.
– Cutting VAT is good.
– Restore the £20 cut to Universal Credit is party policy, I think (?) If not it should be – and we should say it much more often.
– A Windfall Tax on these big companies like Shell and BP, with the money channelled directly to pensioners and low-income households.
There’s three ideas, clear and easy to understand. Every party spokesperson should repeat them like a mantra in every interview. And they should do it with a sense of passion, and real anger. This cost of living situation is not business as usual. It’s a real crisis. People are going to die. We should be the ones who recognise that and speak/act accordingly.
But what do I know?
On the energy cap: Change it so that the first (say) 2 thousand kWh of electric are charged at 10p, the first 6 thousand kWh of gas at 5p. No standing charge, and charge whatever you like after the capped chunk. Competition that the Tories love, and a basic supply of energy for all, and let the market get on with it.
Average UK energy usage is 3 MWh electric and 12 MWh of gas, so this proposal gives the
average user 2/3 of their electric and 1/2 their gas at cheap rates.
A good start and a real basis for a swift drawing up of a very necessary plan. A plan that needs to be agreed and commenced asap not left until an election is called. It takes time to get it into Focus and get it delivered not to mention getting it into the mainstream media.
I hate to say this but do we have the leadership that can deliver a refreshed message to the public ? . We seem to have wrapped ourselves in the past successes of the coalition years but not driven forward a dynamic platform of renewal for the party . i am grateful for the current leaderships contribution to our continued survival but that is largely as a protest vote against the malpractice of both Labour under Corbyn and the Tories under Johnson .Where is the Liberal Democrat USP as we move towards the next general election .
Neil makes a good point when he asks “where is the Lib Dem USP?” (or preferably more than one USP). We desperately need USPs that resonate with a substantial proportion of the British people and we need them to fulfil two criteria
1) They have to be seen to be seen by the electorate as relevant to the problems they face (so not liberty, liberalism etc as most people consider the UK to be particularly liberal already), and
2) They cannot be seen by the electorate as the property of one of the other major parties. Otherwise they will be ignored by the media. These issues are very scarce as most issues are binary and the Conservatives take and own one side and Labour (or the Nats) take and own the other.
Hence, when these issues come along, they have to be cherished and protected. Unfortunately the last two we had, our stance on Brexit (which was great until we gave Boris support for his “Call an Election and Get out of Jail Free” card) and Tuition Fees (until we gave David Cameron his “Let the Lib Dems make unpopular decisions in government card”) were squandered through a lack of confidence by our leaders.
That is the key third factor
3) We need leaders who are prepared to stick to *our* guns.
Currently we don’t have traditional inflation (too much money chasing too few goods and services), instead we have to economics of limited money chasing increasingly scarce essentials.
This would suggest the Bank of England have got it totally wrong about interests rates,using a line of reasoning that is not only deeply flawed but also showing their impudence. Given the impact the Monetary Committee has on our economy and society, it is probably time we make them democratically accountable. I know This doesn’t resolve our problems but it is clear reform is necessary.
“instead we have to economics of limited money chasing increasingly scarce essentials.”
Are you sure about that?
It seems to me that the less well-off have both those problems of limited money and scarce essentials. However the better off don’t seem to have the limited money problem. In particular they seem to have plenty of money for house buying given the prices still appear to be climbing.
Like nonconformistradical, I too am skeptical about Roland’s claim that we currently have too little money in the system. Quantative Easing by the BoE has put a lot of money into the economy – much of which has gone on increasing asset prices (think house prices) rather than investment in the economy.
To deal with the cost of living crisis we are calling on the government to:
Scrap the National Insurance increase.
End the freeze of the Income Tax Personal Allowance.
Increase pensions in line with the latest inflation forecast for this year.
Reinstate the £20 a week uplift to Universal Credit, and extend it to the legacy benefits.
Cut the main rate of VAT from 20% to 17.5% for one year.
We should go further and call on the government to:
Freeze the energy price cap in October and reduce the £400 energy bills discount to £350.
Apply the energy price cap to UK energy prices for businesses etc.
Freeze the price UK energy providers pay for wholesale energy in the UK at the April level.
Reduce the duty on petrol to bring the average retail price down to £1.62 per litre for unleaded petrol and change the duty on a weekly basis to keep the price staple.
The average direct debit payer saw an annual increase in the cost of their energy in April of £693 and those on prepaid meters the rise was £708. The National Insurance and Income Tax changes we are advocating will provide households on average earnings with £210 this year. This together with the £350 bill discount and the £150 money for those households living in band A to D properties will provide £710. This will cover the average increase of £693.
By freezing the price of energy for households and businesses the government would remove that inflation from the system, by forcing the energy producers to sell their wholesale energy at the April price it will be them who pay for the energy price freeze with the government not having to pay anything. This together with the petrol price freeze should remove most of the predicted inflation for after October and might reduce some of the current inflation if businesses see their costs reduce, they might reduce their prices.
The Temporary VAT cut will stimulate the economy by providing an average of £600 to the average household and reduce inflation by about 2%. All these changes together might reduce inflation to under 6%.
We should call on the government in April to:
1 Allow the energy price cap to increase only by a maximum of 0.5% each quarter next year and allow the wholesale price paid by energy providers to only increase by a maximum of 0.5% each quarter (or 1% if the energy cap is in place for six months at a time and is not reduce to three months as planned).
2 From 1st April 2022 change the target retail price to £1.66 per litre (from £1.62) for unleaded petrol. These to apply so long as the wholesale price of petrol is above that of 31st March 2022.
3 Provide a £350 discount to all household bills.
Continued
4 Provide a £408 grant to those on benefits in the same way as the £670 is being distributed.
5 Increase Universal Credit and the legacy benefits by £15 a week.
6 Provide an extra £4 billion for regional investment divided between the nations and regions in proportion to the population of each region and provide an extra one billion to the three English regions with the highest levels of unemployment. Setup a council of councillors for each region to decide how these regional funds should be invested with their allowances paid by central government.
The first one will keep the increase in energy prices over the year from April 2023 to just over 2% and the second one increases the target retail price for petrol by 2.47%. The third provides the same direct help as this year for all households which along with our tax and National Insurance changes would provide £980 for average households. The fourth provides help for those on benefits who will not have the gains from our tax and National Insurance changes. The fifth provides extra money for the poorest in society and makes up for some of the reduction in benefit levels over time. The sixth provides £7 billion to the nations and regions of the UK to spend as decided by those nations and regions. This provides some general economic stimulus and some targeted stimulus to the three poorest regions of England.
Windfall taxes yes but that is not enough. The proportion of wealth in the hands of the super rich is scandalous and constantly growing. Provided it is made crystal clear that only the super rich are captured by it, Lib Dems should be advocating a wealth tax coupled with international co-operation to combat avoidance measures.
Michael set out a whole list of things which are what I would describe as “Wouldn’t it be nice if the world was so perfectly pliant to humanities desires that it could be like this.” You do it over multiple posts (which we are all supposed to be banned from doing), and you provide no indication of any assessment whatsoever of the real problems any one of them might have to face up to.
However, in an attempt to play by the rules of the site, I will focus on only one point you make, where you say “By freezing the price of energy for households and businesses the government would remove that inflation from the system, by forcing the energy producers to sell their wholesale energy at the April price it will be them who pay for the energy price freeze with the government not having to pay anything.”
But one question is, if the worldwide market price of the oil, gas or whatever energy source used by energy producers is more than your price cap, what do they do – stop supplying energy?
David Evans,
“if the worldwide market price of the oil, gas or whatever energy source used by energy producers is more than your price cap, what do they do – stop supplying energy?”
I would expect the energy producers to sell their energy in the UK at the capped price and they would be free to sell their energy on the world market at the worldwide market price. The alternative would be for the energy producers to sell their energy at the worldwide market price in the UK and the government to take the difference between this price and the April price and give it back to the energy suppliers so in effect they are only paying the April price.
Michael BG, but you haven’t really thought through the question I asked. How much of ‘their energy’ would you expect them to sell in the UK and on what basis would you expect it to be calculated? How would you force non-UK based companies (e.g. EDF) to comply, or does it just apply to UK based companies?
We all want to get a solution to this problem, but I don’t think you have really thought these things through.
Michael BG
“I would expect the energy producers to sell their energy in the UK at the capped price and they would be free to sell their energy on the world market at the worldwide market price.”
OK but if UK energy companies can only sell to the public at prices lower than the cost of energy on the world market how do you expect them to buy energy to sell on?
David Evans 9th Aug ’22 – 5:20am………..
David, you mention EDF….On 6 July 2022, French prime minister Elisabeth Borne announced that “the French government is aiming for a full nationalization of” EDF.[31][55] Borne “vowed” to limit the impact of the rise in energy prices through the state having “full control over…electricity production and performance.” Borne told parliament, “we must ensure our sovereignty in the face of…the colossal challenges to come.”
Now, there’s a thought?
“I would expect the energy producers to sell their energy in the UK at the capped price”
My Uk subsidiary has just gone bankrupt. 🙂
There is a far simpler and more radical solution to this. Nationalise energy!
Stop it being run as a business run it as a service.
Nobody in state education run as is, expects profit from education of kids . Nobody ought to expect a profit from from energy at all. Not now, especially, every day with concerns about supply, and price due to Russia’s war on Ukrainian territory.
In the wars this country fought, as with the pandemic, govts step in. This is not the boom and bust era. It is the do something or go bust one!
Whilst I don’t fully agree with Michael BG’s list of suggested remedies, he has hit the nail on the head, as to the main causes of the current price increases – although he omits the food price increases (and shortages) expected to hit in the autumn. Tackle these big items now and you stand a chance of mitigating the inflationary spiral of more general CPI linked wage and price increases that is starting up.
As for the BoE, remember the Govenor is on record around the time of the previous rate increase saying that most of the inflation being seen was outside the control of the BoE. Additionally, in the current rate increase the Committee explicitly referenced rising energy prices – something fundamentally caused by events outside of the control of the BoE and not really impacted by BoE set interest rates.
In general as a society we are going to have to get used to spending more on energy and food and less on leisure/non-essentials, which naturally will have a direct impact on the economy and our environmental targets.
>The prospect of a deep, prolonged recession at a time of soaring prices means that people on the lowest incomes are really going to suffer.
Whilst this is something we do need to be concerned about, we should also be taking note of how this will impact the lifestyles of traditional Tory voters. Disrupt it enough and as we saw in lockdown they suddenly discovered just how much they needed the NHS and government investment in R&D albeit directed at specific sectors of pharmaceuticals.