One line in David Cameron’s response to his party’s third place in the Eastleigh by-election caught my eye:
I would like us to do far more to focus on the bread-and-butter issue of cost of living. I think living standards are declining. We talk about only a protest vote. One of the reasons why people feel inclined to protest is because they are hurting in their pocket.
Yes, dead right. If you can keep prices down relative to wages, then people are better off. Spikes in food or energy prices can force some very tough decisions in the household budget.
I hope this is something the two coalition parties can agree on wholeheartedly and drive forward. Clearly a more open and dynamic economy with more competitive markets for everyday products and services would deliver keener prices and better pay. Freeing up world trade would do the same – this is a big reason to be encouraged by, for example, the steps towards an EU-US trade and investment agreement.
But international trade agreements don’t seem very bread and butter. What else can and should governments do to keep down the costs of food, energy, housing, clothing and so on? Are supermarkets and energy suppliers playing fair? Does the planning system prevent enough homes being built? Does the extra we pay for green energy represent an unfair burden, particularly on the poor, or is it a step in a necessary transition to a future in which we know energy will be expensive?
How can we go further on deregulation, bearing in mind that health and safety, the environment, workers rights, consumer protection and so on are all good things to defend?
Are there any big ideas out there for reducing the cost of living?
Comments are open.
* Joe Otten was the candidate for Sheffield Heeley in June 2017 and Doncaster North in December 2019 and is a councillor in Sheffield.
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26 Comments
Housing trumps everything else (except for those lucky enough to already have their own homes). I’d happily trade a 50% increase in water prices or the cost of clothing for a 3% drop in rent! That kind of shows how important (for young people, at least) it is to tackle NIMBYism.
I think something called Midata will ultimately prove really important in helping people work out in which areas they’re getting a raw deal: http://www.bbc.co.uk/news/technology-19331302
@ Joe : “Clearly a more open and dynamic economy with more competitive markets for everyday products and services would deliver keener prices and better pay.”
Actually, the net result of us creating one of the most deregulated, open economies in the world has been that pay is falling or stagnating for everyone except the very richest, while prices rise as companies already making huge profits impose above-inflation price hikes in order to increase those profits further, paying huge bonuses and increased dividends to, yes, you guessed it, those self-same richest few %.
I think if you think that the answer to our current woes is even greater deregulation to provide even more insecurity in the workplace, and force down wages to the point where we have even more people being forced to use foodbanks because their wages have been so depressed, or giving greater help to overseas companies to use the UK as a milchcow for their profiteering in the name of greater competition, then I think there wasn’t much point winning in Eastleigh. There’s already a party dedicated to driving down wages, removing job security, and enriching the wealthy at the cost of impoverishing the majority. They were the ones in blue.
There’s some fairly simple answers to the questions you asked :
“Are supermarkets and energy suppliers playing fair?” and “Are there any big ideas out there for reducing the cost of living?”
The answers are (a) no, but why should they, they are private companies whose only motive is to maximise their profits and directors’ bonuses; and (b) If you want to prevent this, you need to think about what needs to be done to prevent (a) being the case.
Given that the only possible way of preventing such profiteering at a time of falling living standards, is greater government regulation, but you’ve already suggested that you want less regulation (hence more profiteering), then that limits your options. But then there is another alternative, which is to stop focusing on the cost of supply, and start focusing on the level of demand. Moderate inflation doesn’t matter if people’s incomes are keeping pace. However, if deregulation and greater international competition with developing economies means that the future is necessarily LOWER wages in the UK, then you’re screwed on that one as well.
This is where the end point of Thatcherite economics gets you. A deregulated private sector run by rich men filling their boots from a captive marketplace, while the customers see their living standards drop as a result of wages being squeezed. In fact, this is pretty much exactly what happened in the crunch in 2008. The rich, deregulated, companies were extracting more and more money from the population, while at the same time paying them less and less. The result was the population borrowed in order to fill the gap. The private, deregulated, banks willingly filled that gap because they too could then extract more profits and bonuses from it. Right up until the point when it suddenly became apparent that this wasn’t sustainable.
Since that time, we’ve been living in a limbo in which we’re pretending that isn’t the case, and we’ve even got to a point where some on the self-serving right are arguing that what we need to do is jump-start the whole process again. What’s needed is to deregulate business further, while at the same time removing even more spending power from all but the rich through wage cuts and welfare freezes. Lab rats are smarter – when they electrocute themselves, they stop pressing that button. However, the difference here, I guess, is that lab rats hurt themselves. The sort of very wealthy men who run our economy, and our politics, don’t hurt themselves when they pursue these insane policies which have already very publicly failed; they hurt the rest of us. They’re still quids in.
The LibDems used to realise that the Thatcherite settlement was a nonsense. Even in the 2010 election campaign Clegg and Cable were making hay with their eminently sensible critiques of the neo-liberal model of Osborne’s “contractionary-growth” lunacy. Yet where are we now ? Cable and Clegg sit in a government which is not just overseeing, but creating the worst depression of the last 150 years, while a LibDem councillor asks where we can impose more deregulation on a society laid waste by deregrulation. I could weep.
Good comment Julian with some very perceptive analysis.
I am a great believer in eveyone standing on their own feet and giving a helping hand to those that need it when they need it. Capitalism, free markets and open competiotion are the best systems we have yet come up with to enable equal opportunity for all. Government ,however, must regulate to prevent the persistent tendency to create a rigged game by monopolies, oligopolioes and concentrated blocs of wealth that kill competition and open access to markets. Such concentrations of power are prevalent in banking and financial services, utilities and transport, food supply and distrbution and land ownership among others. Get competition regulation, collective wage bargaining and an equitable system of taxation right and we are a long way down the road to resolving some of these longstanding issues.
@JoeBourke
Thank you, I agree with what you say. I think I find it frustrating when positions are taken that are too black and white. Either “All regulation is bad” (Tory) or “all markets must be regulated” (Old Lab). There are some markets where clearly, regulation can be light touch – those markets where there are few barriers to entry because of low capital costs, where competition is widespread and consumers have ease of access to alternatives. There are, however, many markets where actually there is no effective competition because barriers to entry are far too high, or there are logistical barriers to consumer choice. In those markets, heavy regulation is absolutely vital.
Yet this Thetcherite idea that all regulation is bad is deeply ingrained in our current political class. For example, I recall hearing a spokesman for the food industry on the Today programme last month, explaining that the problem which caused the horsemeat scandal was that there was TOO MUCH regulation in this country ! He was arguing that the food safety regulations here drove up prices (err… ensured beef was actually beef, and produced safely) which meant companies were forced to source products overseas (in order to be able to lie and cheat their customers, companies had been forced to use dodgy foreign sources in order to protect their inflated profits).
When the French company EDF is busy improving Frances Balance of Trade at our expense by imposing big above-inflation price hikes on British customers in what is almost a natural monopoly, do you think that the average punter is thinking “I hope the government cuts coporation tax for utilities, and deregulates the market a bit more in the hope that some other company with billions of pounds comes along and starts offering an alternative” ? I somehow doubt it.
The problem is that our newspapers and Red/Blue Tories have been saying for so long that the state is always part of the problem, and the market is always part of the solution, that their only response to obvious cases in which voracious multinationals rip us off, is to wring their hands, bluster in public, and then ask the Inland Revenue to give those same companies a tax sweetheart deal on the quiet. But then, the politicians making the decisions are not representative of the ripped-off class. They represent precisely that director and shareholder class of the very wealthy who are the only people benefitting from the deregulated, open economy.
There is a huge gap in the political market for a mainstream party which represents the ordinary people, and talks in terms of preventing gas price rises, ensuring food safety, jailing corrupt bankers and preventing the sort of usury and spivvery which we’re all experiencing. UKIP pretend to be this party for electoral purposes, but actually their economic policy is even more barking than the Tories’, and they rely on pointing the finger at scapegoats and recruiting the ignorant and bigoted who would actually be most damaged by their policies. The LibDems could make this agenda their own, as a distinct USP from the Tories, who are constitutionally incapable of putting the interests of consumers aead of the interests of the owner class. But I don’t see Clegg grabbing that opportunity any time soon.
Wrong DC – that’s Douglas Carswell’s response.
Spikes in food or energy prices can force some very tough decisions in the household budget.
Closing all those power stations is probably going to hurt, then.
http://www.guardian.co.uk/business/2012/oct/05/blackouts-coal-power-stations-ofgem
Good points from Julian Critchley.
I have direct experience of the “bread and butter” issue.
The cause is that 75% of my entire income goes directly to my landlord.
This means I can no longer afford enough food.
The welfare cuts just cut more from my food budget.
It is strange to say this in the UK in 2013, but people are literally starving.
Julian – I agree with your comment about the dreadful volte face performed by the Lib Dem leadership in the aftermath of the creation of the coalition. How many times did Vince Cable appear on TV saying (and this is either an exact quote or very, very close) “you don’t take the patient of the drip when they’re in intensive care”?
That was a view that I agreed with then and agree with today. And yet the coalition has implemented policies that inevitably lead to classic Fisherite debt-deflation. The effect of QE to date has primarily been to create asset class bubbles (in equities and commodities) that give the superficial appearance of economic health, but it is simply an illusion and a dangerous one as it feeds inflation in basic commodities such as food and energy. At a minimum the BoE needs to tell the QE recipients that the money is not to be used for speculation in the commodity markets.
I have previously characterised the government’s economic policies as cargo-cult economics – that simulating some of the consequences of economic prosperity will magically create that prosperity. The Liberal Democrats shouldn’t allow themselves to be sucked into the economic fantasies of the Tories.
Low wages, temporary contracts, mass un(der)employment and job insecurity are causing lower living standards. This is a problem that dates back decades. It is the fundamental problem of modern times.
Oops. That should of course be “you don’t take the patient off the drip” repeatedly said by Vince Cable during the 2010 election campaign.
two obvious things to do: 1) scrap Trident and save lots of money for use on more important priorities; 2) enable the honest sale of horsemeat to provide more price competition in the meat trade.
What Julian and Joe wrote.
Deregulation in a monopolistic economy ‘frees’ the powerful by depriving the People of their legitimate power. Paradoxically the more you deregulate the big business interest, in the author’s terms, the more you regulate the life of the People and damage the chances of small, local business. The People are not free to resist the exploitation by lightly regulated concentrations of economic power, they are its subjects. Small, local businesses are discriminated against.
Today’s system has considerable similarities to the system operating under the pernicious Corn Laws – and today’s Westminster is as instrumental in this oppression as was the Westminster that sustained the power of the landed interest to retain its monopoly over the supply of the staple requirements of the People.
The good fortune was that the anti-Corn Law leaguers were inspired and led by great Liberals. Where is the John Bright of today?
The only ‘lead’ that the People are being offered today are those focusing their attention on immigration and ‘shirkers’ (and other ‘drawbridge up’ fixations) rather than on dismantling monopolistic power.
While the anger of those either living on food parcels or those of us angry that our neighbours have to do so is focused on ‘outsiders’, the Establishment continues to get away with murder, literally.
So I’m seeing a near consensus in these comments that more regulation would lower prices. Forgive my scepticism, but can we have a few examples of how this might work?
Most of the low prices we enjoy today are due to importing most consumer goods (and a lot of our food) from low wage economies. Meanwhile expensive necessities like energy depend directly or indirectly on imports too. The first are rising in price as their workers demand fairer wages, and both are increasing further in the UK due to the weak pound. Meanwhile the solution that the Tories from Thatcher on espoused – manufacturing doesn’t matter because we’ll make so much money from financial services – has collapsed, and though still profitable for some is unlikely to be the dynamo it was once claimed to be. So I reckon the cost of living is going to carry on going up for quite a while – probably faster than it has been.
So what do we need to do? Investment in growing the UK manufacturing economy would help. Britain has some very successful and innovative high tech companies in areas from computing to biotechnology to space satellites (yes really) but they are mostly small.
Investment in infrastructure will create new jobs and if it’s the RIGHT infrastructure will reduce energy use too. (We can pay for more of this if we scrap Trident and don’t replace it.)
And, as others have said, we need more housing. Without infilling every green space in our towns and villages. We need to revisit 1947 and plan some more new towns – better to destroy some areas of countryside than partly spoil almost everywhere. And introduce Land Value Taxation of some sort to encourage building on the vacant sites that have planning permission but no houses.
Can we do that? Persuade Cameron where we can, and campaign for it ready for 2015 where we can’t.
I agree with David – investment in the right type of infrastructure is key. As far as housing is concerned we know its much easier to make new homes energy efficient than it is to ‘retrofit’ insulation and solar panels to old ones.
The pressing need is for affordable housing, and we need to be imaginative in using ideas like Community Land Trusts to lock in affordability for increasing generations. Nobody seems to mention the main reason we have such a problem with the cost of housing benefit – the lack of social housing at low rents.
However, all of us who are Councillors know that one major barrier is resident resistance to any housing being built next to their existing homes!
Joe, surely there are two sides to the standard of living; wages (and benefit levels) and prices.
Wages for 90% of the working public have been falling in real terms for thirty years – almost exactly co-terminus to the Thatcher revolution and the craze for regulation lite. Of course in recent times real wages have been squeezed further by tight monetary policy. If we changed the target given to the Bank of England from the forecasted rate for inflation (3 years out according to the minutes of the last MPC) and instead targeted a figure for nominal GDP or even better nominal national income, wages would rise – and then, as the output gap narrowed, the daft self-immolation of cuts to welfare (exacerbating the falls in the standard of living for the most vulnerable) could be reversed.
On the prices side most price rises come from sectors over which regulation has been relaxed. It is obscene that under regulation Centrica can jack up prices by 6% this year and post 11% profits. So, yes, a citizen-centred regulator could reduce prices.
We are not seeing small businesses in competitive environments able to raise prices. Those with monopolistic power are. Again, they can do this because of timid and big-business-centred deregulation.
Many of these large concerns can avoid tax because of weak regulation of tax affairs and ‘steal’ an even greater march on small business, wreaking havoc in our highs streets and communities. They can also pay under a living wage in the certain knowledge that the general tax payer will pick up the difference in benefits paid to the low paid.
It is time the people who are victims of this pro-monopolies/oligopolies system fought back. They have little ability to do this through their elected representatives who back policy in the interests of a meritocracy to which they belong that has no experience whatsoever of life outside their own culture.
In the circumstances the squeezed middle or as Ashcroft’s polling labels them, the ‘downbeat dependents’ and those with ‘entitlement anxiety’ (who make up 42% of the electorate in his poll of 8,000 electors last August) plus the 13% that are ‘optimistic individuals’ and the 15% that are ‘suspicious strivers’ seek representation from UKIP, the right wing of the Tory Party and a few shocking Liberals.
If we are to stop the rising tide of xenophobia and inter-community strife that UKIP will continue to stir up, we have to start campaigning alongside ordinary people to help them take and use power.
Eastleigh was not won in three weeks. It was not won by a leader who leads in the interests of the meritocracy. It was won over countless years by a community politician and backed by legions of community politicians who have campaigned in their communities to help local people take power. Just ask Martin Kyle what it takes to win the trust and support of the people.
Bill – are you sure that wages have only been falling in real terms since Thatcher? What about the 70’s?
Milton Friedman was a passionate advocate of increasing real income for working people. Here’s a link to “Free to choose vol 9” which is about inflation. Starting at about 10 minutes is a very interesting section about real disposable income : http://www.youtube.com/watch?v=L6N_wYOEUSY.
What is truly extraordinary is how 30 years later everything feels exactly the same (and even the mention of lira might be prescient!).
Ignore the NIMBY brigade and build more homes wherever we can. The single biggest expense for nearly everybody under 35 is rent, which seems to rise above inflation every year, and the only way we can do something about that is by increasing the stock of housing.
I have two follow-up questions.
1) David, above, said “Most of the low prices we enjoy today are due to importing most consumer goods (and a lot of our food) from low wage economies. Meanwhile expensive necessities like energy depend directly or indirectly on imports too. The first are rising in price as their workers demand fairer wages, and both are increasing further in the UK due to the weak pound.” In so far as it’s true that prices will increase due to a closing of global income gaps, is that not a good thing? Similarly, it’s more certainly the case that oil, food and metals have increased in price due to increased living standards in China and elsewhere (and due to population growth). Again, can we reasonably object to that?
2) Does discourse about the cost of living overemphasise the importance of petrol, gas and electricity because they are fungible, are bought regularly, can be simply priced and are especially volatile? Energy oligopolies seem to be giving all businesses a bad name, based on the comments above.
@Bill – “Wages for 90% of the working public have been falling in real terms for thirty years”. ONS figures say the median real wage rose 62% between 1986 and 2011 (up 47% for bottom decile, 81% for top decile, 71% for bottom 1% thanks to the minimum wage). http://www.ons.gov.uk/ons/dcp171776_286266.pdf
One big thing the government could do to decrease the cost of living in the long run (not an election winner!) is invest significantly more money in research (as is LD policy). Crop yields can be increased, photovoltaics made much cheaper, energy storage much improved, goods made cheaper and much more efficient… Obviously it’s not just government funding that drives these things but it’s a great investment, nonetheless.
@JoeOtten
I think that the most obvious exmaple of how regulation might lower prices, would be for the utility regulating bodies to cap price increases which utility companies can impose and/or insist on a price reduction. That would, of course, require political courage, because the regulators won’t go anywhere near such action without backing from Westminster.
But again, I return to the same point I made earlier – falling real incomes can be addressed in two ways – lowering inflation or raising wages.
Thatcher targeted inflation for one very clear reason : inflation hits wealth. Those with unproductive wealth, based on land values, savings and other assets, are those who are most affected by inflation. For those who live by spending the wages they earn, then as long as those wages keep pace with inflation, there is rather less impact. Which is why even in the 1970s, when inflation was much hiugher than it is now, real incomes at the bottom of society were rising, and wealth inequality was falling. Another, rather helpful, side-effect of moderate inflation is that debts are eroded in real value. Given we’re in a situation in which most of our citizens (the non-wealthy) are getting poorer, and we are carying a huge burden of debt, then one might have thought there was a very strong case for allowing inflation to rise somewhat. However, this would of course hit the people who own the debt as an asset, and those who take income from assets rather than in wages. As these people are the wealthy, and our current government seem to see the preservation and exponential increase of the wealth of the already-wealthy to be their top priority, then we might have an explanation for why we are still seeking to focus on deflationary policies at a time when most of us are getting poorer, and inequality is rocketing.
Of course, knowing that targeting inflation rather than, say, unemployment, is of benefit to the wealthy at the expense of the average and the poor, it’s obvious why the Tories support it. The question is : why do the LibDems ?
@Julian Critchley
On 6th Feb ’13 – 6:53pm you posted
“I bet £50 that the LibDems will lose Eastleigh. Anyone want to have a bet they’ll retain it ? Loser donates cheque to charity of winner’s choice ?”
and david replied at 7:10pm
“I will take that bet – but only if you are prepared to take the bet off everybody on this who wants it? You obviously seem very confident – but who do u think will beat them? Lab or UKIP?”
Have you paid out your £50 yet?
Mark, read a bit further down the thread for my reply. It’s a shame nobody was willing to take the bet – their charity would have been £50 better off.
Bit off-topic though.
Regulation is a poisonous word in political debate.
It can mean many different things, so it can easily cause confusion. It’s also exclusively focussed on the corporate transaction.
We don’t talk about regulation in education, but the curriculum and standards as the means for regulating the national education, so why don’t we talk about conditions and standards in business and employment instead and thereby grasp hold of the means of regulation?
Julian,
The problem with that is that we need investment in energy. If you cap price rises, and world energy prices go up, you are forcing a big loss on energy companies. Nobody will invest in a sector under those conditions. Now perhaps the state could invest and take over the energy sector. But that is a bigger debate.
On inflation targetting – pretty much everybody agrees now that it is a good idea. You don’t get lower unemployment in exchange for higher inflation, or at least you don’t for very long – you may get a temporary drop in unemployment in exchange for a permanent increase in inflation. That’s what the theory says at least. If you know of a robust challenge to the theory, I’d like to hear it.
Joe,
You have some serious catching up to do if you are not aware of the changes both the Fed under Bernanke and the new Government in Japan have been making.
And, of course, you will need to read what the next Governor of the Bank of England is saying too.
Here’s a good place to start: http://economistsview.typepad.com/economistsview/2012/12/central-banks-can-phase-in-ngdp-targets-without-damaging-the-inflation-anchor.html
And here are a couple of piece from Oxford http://mainlymacro.blogspot.co.uk/2012/12/how-to-try-and-get-more-inflation.html and http://mainlymacro.blogspot.co.uk/2012/06/but-which-inflation.html
B
Bill, that’s a fair point, and I wasn’t being clear. The debate in the 80s was between inflation targetting and you might call it unemployment targetting, and inflation targetting won that. I wasn’t arguing against the idea of an NGDP target in addition to the inflation target.