Something strange is happening in Britain. The country is in the grip of a massive cost-of-living crisis, and no one seems to be willing to take the necessary steps to remedy the situation.
Last Friday, the Bank of England announced interest rates would rise to 5%, higher than many economists were expecting.
For ‘The Old Lady of Threadneedle Street’, as the Bank is sometimes referred to, it’s not a day to remember with any fondness. Interest rate rises are a blunt instrument, and repeated rises have been shown to be ineffective. They create headaches for existing homeowners, dash the dreams of aspiring homeowners, and create the conditions for an economic recession, which leads to higher unemployment and swelling dole queues.
In short, everyone loses out.
For working people, it’s the latest bit of bad news, on top of last week’s bad news, which came on the back of the previous week’s bad news. On top of 18% food inflation, stagnant wages, flatlined growth, and non-existent productivity in the economy, many economists are now predicting a recession.
The impact on the lives of working people is simply staggering. The charity Citizens Advice says it has seen a sharp rise in the number of people accessing crisis support. Some 200,000 people were issued with a food bank voucher in 2022, and of that number about 1 in 8 were in employment.
Britain is becoming a country where work isn’t a route out of poverty.
How did we get here? And what is to be done about it?
Austerity: failure is an orphan
After the Bay of Pigs fiasco, John F Kennedy said, “success has many fathers, but failure is an orphan”. Perhaps a similar thing could be said about the cost-of-living crisis gripping the country.
It’s true that Brexit isn’t going as well as many of the hardcore Brexiters in parliament, like Jacob Rees-Mogg’s European Research Group, would have liked. Their libertarian fantasies of a Britain buccaneering on the high seas and trading around the world, of a British Empire 2.0, may have crashed on the rocks of reality. But that’s not the only reason why the cost of living is so high.
Failure is an orphan for which no one will claim parenthood, yet its lineage is complex. The story of Britain’s cost-of-living crisis is the story of multiple governments, both Labour and Conservative, failing to get a grip on Britain’s long-term problems.
The austerity of the Cameron-Clegg coalition ripped the fabric of society apart. Ideologically driven and following 30 years of free-market economics, it left Britain acutely vulnerable to social strife and external shocks, like Covid-19 or Russia’s invasion of Ukraine.
The legacy of Thatcherism, the failure of austerity, New Labour’s over-reliance on a vast flexible workforce, Brexit, international tax-dodging, the Russia-Ukraine war, a broken housing market … they’ve all played a role in the current cost-of-living crisis.
But questions remain. What to do about the cost-of-living crisis? When will it end? And how will it be resolved?
A convenient recession?
Last Friday, when the Bank of England announced those unexpectedly high interest rates, the bank immediately issued a denial that it was trying to engineer a recession. There is a very cynical interpretation which takes the view that, if you were a Tory or a Tory Brexiter right now, the prospect of a recession would be starting to look like a very attractive option.
A recession would help the government curb the wave of strike actions going through the public sector. If you can imagine, all those public sector workers demanding a livable wage could be made to return to work through cold and hunger.
Since the wave of strikes arose last year in the immediate aftermath of the pandemic, the government has attempted to undermine industrial action by introducing new draconian legislation, such as the strikes (minimum services) bill, and to undermine the striking workers through a prolonged media campaign. So far both have failed. Public support for the striking public sector workers remains strong, as opinion polls consistently suggest, and morale remains high amongst the trade unions.
The obvious way for the government to end the strikes is to do a deal with railway workers, junior doctors, higher education workers and nurses. That, however, is not what the government wants, so a different option is required. A recession would be the perfect excuse, from the government’s point of view, to justify not intervening in the economy to placate unions, increase pay and curb inflation.
It would allow the government to ‘reset the dial’ on the economy post-pandemic, return the status quo to an era of austerity, pretend the strong centralised government seen during the Covid era was a bad dream, and tell the workers there is no money left in the kitty.
Dividing public opinion
A recession would also have the added benefit of splitting public opinion of the strikes. In an economy where every worker is feeling the pinch, empathy towards striking workers has remained high. A recession may very well have the effect of turning the public against striking workers, as many homeowners begin to struggle to pay the mortgage or are made redundant. Better to denounce public sector workers as ‘selfish’ and ‘self-interested’, than to actually go through the hard work of agreeing a pay rise.
If striking workers could be made to accept being poor as nothing less than their due, then you can understand why a hardcore Brexiter, watching Brexit dreams crumble, might find an economic recession an appealing prospect.
The consequence of ever deepening austerity
Let’s be under no illusions, if an artificially engendered recession were to be brought about, working people would suffer. It would destroy lives and it would lay the foundations for further turbulence in politics. It is exactly the post-2008 approach taken by the Cameron government in the austerity years that sowed the seeds for the rise of populism, right-wing extremism, and xenophobia.
For the cost of living to be resolved two things need to happen: wages need to go up, and prices need to come down. The Conservatives have been desperate to avoid that reality, but the prospect of an increasingly prolonged cost-of-living crisis, or another recession, will simply add fuel to the fire which has raged across Britain since 2016.