Be warned: Inflation could take UK politics into a very dark place indeed | Jonathan Freeland
OInter is coming. The Bank of England says so. Pick your measure of the economic gale heading in that direction, deepening a chill that’s already biting hard. The Bank says inflation will reach 13%, reducing the value of wages, making everything more expensive, starting with food and heating, forcing even more people to decide whether to starve or shiver. We must prepare for a recession that will see five consecutive quarters of contraction and a fall in household incomes of 5% by 2024 – the biggest fall since records began more than half a century ago. Of course, all of this will hit those who have the least the hardest. One in five UK households will have no savings by 2024. Meanwhile, inflation is up to 30% higher in cities across northern England, thank you, said the Center for Cities, to poor home insulation and a “car addiction” that forces people to pay more for gasoline.
You don’t have to be a strict, old-school economic materialist to know that all of this will shape our politics, in both deep and superficial ways. Start with the latter and the current competition to choose the next British Prime Minister, an anointing process mysteriously delegated to a select priesthood of around 100,000 Britons who are anything but representative of the country whose fate they hold in their hands.
Indeed, the Tory leadership race is set to be rocked by the warning from Threadneedle Street, although of course both contenders hardly needed Thursday’s forecast to know that the UK is already in serious trouble. cost of living crisis. Liz Truss and Rishi Sunak should prepare themselves and their group for the extremely difficult task that one of them will face in less than a month. But it’s not like that.
Instead, Truss continues to serve up soothing fantasy speeches about tax cuts, even as she splashes the cash, with promises to spend on everything from defense to doctors’ pensions: the most Cake’s famer may be in his final days as prime minister, but his doctrine lives on in fatigues. Sunak likes to pose as Mr Sensitive, insisting that immediate tax cuts would only ‘add fuel to the fire’ of inflation, but he is committed to his own form of politics. complacency, telling the Conservative electorate whatever it wants to hear.
Unfortunately for him, we now have video evidence of how willing he is to sink into this business – and how right-wing he is. In a pretty garden in Tunbridge Wells, it vaunted to local Tories for his efforts as Chancellor to reverse Treasury formulas “which have pushed all funding into deprived urban areas” rather than more deserving communities like their own. It’s true: it’s Tunbridge Wells that needs help.
At the national level, it will surely be a different story. One would think that no party in power presiding over an economic cataclysm of this order could hope to be re-elected. Rampant inflation, looming recession, rising mortgages, falling incomes: every political textbook says these are the circumstances in which incumbents get bullied by voters. Keir Starmer should be one step ahead of any Conservative alternative. And yet look at it Thursday poll this showed that, in a match-up of Starmer against Truss, it was Truss who was ahead by two points. Labor is leading in other surveys, of course, but in this climate it should be out of sight.
Yet with an economic shock of this magnitude, the impact will be felt far beyond Westminster and electoral politics. Deep in Western popular memory is the knowledge of where hyper-inflation can lead – Berlin wheelbarrows full of worthless banknotes as a precursor to Hitler – but what of a sharp rise in inflation that isn’t at Weimar level, but that’s a hike all the same? What will it do to our politics?
A quick consequence could be a change in public attitude towards the war in Ukraine. The most obvious cause of the current inflationary spurt is the rise in oil and gas prices caused in part by the Russian invasion. Standing with Kyiv and punishing Moscow has had a cost paid by ordinary people on the forecourt and in their heating bills. So far, the British, like most Europeans and Americans, have been admirably strong in their support for the victims of Putin’s aggression. But as inflation bites harder, that could change, with renewed pressure on Kyiv to give way to its tormentor, if that’s what it takes to drive prices down.
Public discontent can find another outlet. The first signs of the kind of disobedience movement that welcomed poll tax in 1990 are emerging, with a Don’t Pay campaign urging consumers to refuse to pay their energy bills until companies lower their prices. Energy retailers will point out they are not the same as energy diggers such as BP, which this week announced it had tripled quarterly profits to £7billion, but few will be in the mood for that distinction.
A rise in inflation of this order propagates across class lines. Workers are struggling, as a runaway rate of inflation turns even a pay rise into a cut. The middle classes, meanwhile, see all savings shrink before their eyes. If they are homeowners, their mortgage bills will skyrocket, potentially out of reach. And when homes begin to be foreclosed, fear turns to fury.
Where is this anger going? Guardian readers might hope it’s directed at the act of self-harm that compounded our current woes. I asked Albrecht Ritschl, professor of economic history at the LSE, what step the UK government could take to ease the pain. “Hold Brexit for 20 years,” was the response. He knows that won’t happen. But he explains that the current crisis is not one of demand, but one of supply: there are simply not enough products to meet demand, in part because of post-Covid blockages in the global supply chain. In Britain this is exacerbated because we can no longer import European products as freely or as cheaply as before.
In this context, policy makers are left with a question of distribution: how to distribute the finite, even diminishing, amount that we have. The priority must certainly be those who simply cannot afford to live: reinstating the £20 increase in Universal Credit would be a start. But, says Ritschl, “if you want to give something to the poor, then you have to do it like Robin Hood – and take from the rich.” In other words, not the tax cuts that Truss promises, but tax increases for the wealthy.
A wealth tax, an increase in benefits and an overhaul of Brexit: it would be reassuring to imagine these as the consequences of this crisis. But I won’t hold your breath. Instead, memories stir of the last rise in inflation, in the 1970s. This decade brought a rise in political violence and a rise in support for the racist far right, in the form of the National Front .
Under Boris Johnson, the Conservative Party has moved towards a nationalist populism that Truss seems unlikely to abandon. This creed is already an ugly hue, but it could darken – especially when winter rolls around.