Trouble ahead: inflation, energy poverty, Bank of England and Truss

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Trouble ahead with Truss

and London’s Streets Paved with Poverty

By Russell Bruce

The Bank of England in raising interests rates by 0.5%, a record increase since 1995, gave another hit to the struggling UK economy hitting those with a mortgage and those renting. Raising interest rates is a standard response to tackle inflation but the question is as rates have already been rising in 0.25% hikes in recent months, is this double hit the correct response to the challenges the UK faces? There is significant room for doubt.

Incomes have been falling over many years as the UK government has kept public sector pay at below inflation increases and companies have targeted employee remuneration to reduce costs. Had that long-term impact on real earnings not been the case people would be more inclined to limit income claims than they are now, in the face of major increases in the cost of food and energy.

Speculation around the possibility of a recession had been growing in the US recently but Friday’s figures recording the US had added 528,000 jobs in July indicated, whatever the concerns about the US economy and inflation, the larger than expected increase in employment suggested recession fears had declined. The New York Times reported “The blistering pace of hiring continued in July.” None of the usual observers had expected the US Labour market to produce such strong results.

UK has a tight labour market

The UK does not have the people to fill the jobs that are available and is therefore in an entirely different position having lost over 1 million EU workers since the Brexit vote, many of them in healthcare, with the NHS currently facing considerable challenges. Crops are going to waste because there are not the people to pick and pack them. Concessions to bring in temporary workers have failed to generate the people needed.

Make no mistake the Bank of England’s objective is to drive down demand for increases in sustainable income levels and increase unemployment. The labour market looks over tight to make that a realistic goal. Businesses faced with increased borrowing costs will cut jobs but this is easier to accomplish at the low skills end. There is a shortage of the higher qualified and higher skilled.

Over leveraged businesses that borrowed too much on low interest rates will go to the wall but stronger competitors will pick up their market share and employees. Those with low skills most affected by not being able to eat and heat will take the brunt of any increase in unemployment. Truss’ plans to reduce taxation will be of no value to those not earning enough to pay tax or who no longer pay tax because they do not have a job. There is plenty of anecdotal evidence – the downward pressure on pay for years is driving more, even in skilled jobs and the public sector, into poverty.

For years we have had regular reports of rising levels of poverty in the UK. The Joseph Rowentree (JRF) report looking at poverty in January 2022 is already well out of date as it mainly looked at the impact of the Covid pandemic. Things actually looked relatively rosy compared to where poverty rates are today. Inflation was expected to be above 3% until April 2023. That does not quite equate with the Bank of England’s (BoE) latest prediction of inflation rising to 13.3%. More than 10% above the January baseline prediction.

Suffer the little children

Child poverty rose from 2012/13 to 2019/20 by 4%, affecting almost a third of children in the UK. Pensioner poverty rose by 5% in the same period, impacting around 20% of pensioners by 2019/2020. The JRF report noted the big increase in destitution “with more than a million households (containing 2.4 million people, including 550,000 children) experiencing destitution in 2019, a rise of 35% since 2017, with modelling suggesting further increases during the pandemic.” Note how now in August 2022 this data can be seen as historic in real terms. Today’s inflation rate of 9%, growing to 13.3% in months, is already shredding the income of 90% of the UK population and the BoE’s rate rise will make things worse for all not in that top 10% who will benefit from the increase in interest on their savings as explained by Richard Murphy in an article in Prospect.

Scotland doing better

There is some better news from Scotland where the SNP government has some social security powers, as does N. Ireland. The SNP has set targets for reducing child poverty and is rolling out increased support for families with low income levels. What can be achieved under devolution, although significant, is well short of what Scotland could achieve under independence where we would have total control over Scotland’s resources.

London’s streets: Paved with Poverty

The two countries with the lowest poverty rates are N. Ireland 18% and Scotland 19% compared with 22% for England and 23% for Wales. London is paved with poverty having the highest rate in England at 27%. The North East and West Midlands are on 25% and Yorkshire/Humber 24%. JRF also notes these English regions have higher rates of unemployment and “higher proportions of adults in lower-paid ‘routine’ occupations”.

Bank of England is wrong on interest rates

Interest rates affect everybody as the squeeze means more money is taken out of the economy by higher mortgage and rent payments with many turning to credit cards to help make ends meet. They will not because credit card rates will also increase, compounding the pressure on households. The rise in energy costs is global and it is down to one man Vladimir Putin. Angela Merkel once asked Putin what he wanted. That has been clear for long. Putin’s long-term objective is to restore the old Czarist empire and undermine Western Europe where former Warsaw pact countries have joined the EU, damaging Russian post WWII influence.

Media careless on Ukraine

The media are careless in attributing the current energy price rise to Ukraine. Understandably we are all very concerned today about the energy prices we are now facing in the UK but it is not Ukraine’s fault and we are not subject to daily bombing and war crimes. This is a deliberate targeted strategy by Putin in his attempt to destroy Ukraine as a prelude to further interventions and hurt Western European countries who have relied on Russian oil and gas for too long. Germany in particular has long failed to understand the vulnerability of their dependence on Putin’s Russia in the belief dialogue and trade would would eventually develop a more positive relationship as democracy took hold in Russia. Putin was always an autocrat and democracy is further away for Russia than ever under Putin’s attack on Russia’s limited free media now moving abroad to avoid the Siberian Gulag.

UK has the opposite media problem

The UK media is dominated by far right-wing foreign ownership and the BBC pays too much attention to them reporting on their preoccupations of the moment without exercising proper judgement and questioning their editorial messaging. That makes it easier for the present Tory government and Truss, as probable successor, to continue to make it more difficult to be able to vote in elections. Human rights are being attacked by bringing in legislation that reduces the human rights we have, up until now, enjoyed. Democracy in the UK is becoming ever more fragile. The time is coming to leave, regain our European citizenship as an EU member state, restore the damage to our EU exports, ensure we have free movement again and can participate in pan-European projects. Europe is waiting for Scotland. We just have to make that choice with a clarity that will bring the UK government to the negotiating table.

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