When it comes down to questions of money Rishi Sunak and Jeremy Hunt aren’t always over generous with the truth. They are fond of putting on their most serious voices and giving us long lectures about the public finances and what will happen to the country if we don’t follow their wise advice. They are less fond of telling us the whole truth about the causes and cures of inflation.
In doing this they are engaging in the oldest strategy in the book. That is to confuse people by telling them one thing which is true and then once you’ve got them nodding in agreement slip in a load of half-truths, lies, cover-ups and omissions of important facts.
No reasonable person can deny that there is a problem with inflation at the moment or that runaway inflation is very harmful. Anyone paying a grocery bill, paying a mortgage or rent, trying to cover their transport costs or trying to heat and light their home is all too well aware of the pain.
What is at dispute is what the cause is. There have been times in history when excessive wage rises are the key factor pushing up prices. This isn’t one of them. As I write this, the latest data shows that the cost of living is rising by 7.9%. Wages are going up by 7.3%. That represents a 0.6% real term cut in income for working people. If you work in the public sector things are much worse. There the real-term pay cuts have gone on for over a decade. So whatever is causing inflation, it hasn’t been triggered by greedy workers and certainly not by generous pay awards in the public sector.
The reality behind the inflation untruths
It is necessary to look elsewhere for the causes of inflation. Over reliance on expensive fossil fuels has been one trigger. The price of energy shot up this winter and that quickly fed through to inflation. Instead of focusing on effectively controlling the fossil fuel companies profit margins and investing to reduce energy consumption this government decided to fritter away around £37bn on trying to subsidise the price of energy.
Rising food prices has been another factor. Some of that increase has been traced to Brexit problems increasing costs of imports from Europe, some of it to labour shortages that are also directly traceable to Brexit, some of it to climate change disruptions to supply chains and some of it to Vladimir Putin’s invasion of the Ukraine. Since Sunak was an early and enthusiastic supporter of leaving the EU and has dragged his feet very badly on climate change he can only claim a lack of responsibility for one of those factors.
Then there is the cost of rent and of mortgages which are most heavily driven by the level of interest rates. Far from being the only cure for inflation, interest rate rises are actually one of the key drivers of inflation. The current mid-range predictions are that the average mortgage payer will end up spending an extra £500 a month because of increased interest rates. Crippling increases like that drive people to ask for extra wages. In other words, the single most important policy that this government is supporting in the drive to reduce inflation is actually pushing up the cost of living and creating a price wage spiral.
Treasury revenue set to increase
The other major flaw in the government’s case is that inflation raises government revenues significantly and reduces the real value of its debts. It therefore has a lot more margin for manoeuvre than it is telling us. Every time a company puts up a price it tends to push up tax revenues on sales. Every time someone gets a pay rise the government taxes all that rise at the highest marginal rate of tax that the person pays and new people end up in higher tax brackets. That is what is driving a rise in government revenues to record highs.
So any tales of government not having the money to pay teachers, doctors, and care workers without cutting departmental budgets are simply not true. During a time of inflation the government has to make choices about what it does with the extra tax revenues. This one is telling us that it won’t cut taxes just before the election but is trying everything it can to pull that rabbit out of the hat at the last minute in the hope that it can rescue its fortunes.
Zombie government: devoid of strategies and out of ideas
The government is also seriously neglecting the one method of reducing inflation which always works. That is to invest in increasing efficiency so that costs go down and prices follow. They could cut energy bills for every householder, school, hospital or business in the country with a serious investment programme in their premises. They could improve the competitiveness of British industry by helping companies to buy better equipment. They could increase investment in research and development and on turning our brilliant science into successful business ideas.
Instead of doing that this government has no serious strategy to invest in reduced consumption. Despite endless spin the UK has the lowest level of investment of any country in the G7. So our costs and our prices stay high and work moves abroad. Britain continues to remain outside the Horizon science and technology innovation circle because of deliberate choices made by Rishi Sunak’s government.
A tired end-of-term government seems incapable of doing anything other than mouthing platitudes about there being no alternative whilst it ignores ones that are staring it in the face. That wouldn’t be so bad if all that we had to put up with was being asked to listen to vapid spin and lame excuses night after night. What really hurts is that ordinary people are seeing their living standards drop like a stone and vital services are being run into the ground because of a failed obsession with austerity being the only solution.
When those ordinary people finally get the chance to kick this government out of office it will be interesting to see what they do to the politicians who have inflicted so much pain.