WWhen a government steals a major opposition policy that they’ve derided for months and goes directly against their ideology, you know something big is going on. The Conservative Party’s rant about a windfall tax on energy companies to fund payments to “relieve” the cost-of-living crisis is partly a typically crude attempt to change the theme of Partigate. But it’s also a more revealing sign: that of late the government has become very concerned about inflationary policies.
It is right to be. For many voters, many of them conservatives, high inflation is very scary. Shrink savings. Rarely is a salary increase sufficient. Safe investing seems impossible. Government services are less adequate than usual, luxury, small sweets and even necessities are becoming more and more expensive. The whole process of personal enrichment promised by capitalism is being overturned. The hardness of money – the basis of so much in our lives – turns out to be an illusion. It becomes clear that money, like anything else, can decay.
High inflation makes people angry. When Britain had a long run of it, from the early 1970s to the early 1980s, right-wing politicians, commentators and voters often called it a disease, claiming it was caused by the greed of trade unionists and the waste of Labor government. It was seen as a sign of decadence that could lead to national collapse. Geoffrey Howe, Margaret Thatcher’s first austerity advisor, said in 1982: “Inflation is a great moral evil. Countries that lose faith in their currency lose confidence in themselves.”
The UK currently has the worst inflation rate of any G7 country. Other massive increases in food and fuel prices are seen as inevitable, such as the £800 rise in energy prices in October, which energy regulator Ofgem forecast this week. Resolutions warned in March that “it is difficult to overstate the scale of the upcoming cost-of-living crisis.” The sober think tank predicted “the highest inflation in 40 years and the worst income pressure ever”.
That shock will begin to be felt by a country far more unequal than it was in the 1970s and by a much more vulnerable population. In 1975, about 13% of the British population lived in relative poverty. The number is now about 22% – and our population is the fifth largest.
Unlike the 1970s, average wages have been stagnating or declining for more than a decade. The climate crisis and commodity speculators are causing food prices to rise repeatedly. The state’s ability to respond to social emergencies has been weakened by 12 years of austerity. High inflation may be familiar to older Britons, but its return could lead a fragile and divided country into uncharted territory.
What could be the policies of our new age of inflation? The fact that the government’s new cost-of-living plan is the third in four months suggests that panic and improvisation will be the conservative response. The latest measures are generous – up to £1,200 going to the poorest families – but they may not be generous enough. The increase in the energy price ceiling this year is expected to be £1,500. And it’s not just high energy prices. Many forecasters also do not expect inflation to fall quickly. Perhaps we should expect more special announcements from Rishi Sunak.
That he had to rely so heavily on the Labor idea this time around suggests that the Conservatives are running out of anti-inflationary means. Its windfall tax – timidly disguised as a “temporary targeted energy gains tax” – is more ambitious than the Labor tax which also indicates that there could now be a bidding war between the two parties over cost-of-living policy.
But they can still struggle to keep up with the crisis. In the age of inflation, social conditions can change rapidly. At the height of German inflation in the 1920s, the price of a cup of coffee sometimes doubled in the time it took to drink it. There was hoarding and an increase in theft and prostitution. Politics became more polarized and scapegoats were distinguished: immigrants, unsuitable politicians, profitable businesses. Much of the political energy has shifted from Parliament to the streets, to protests, strikes and riots.
Britain is nowhere near a fever yet, but it is showing some of the same symptoms. This week, the RMT union voted in favor of the first national rail strike in decades, in part because employers “failed to align employee wages with … the rising cost of living.” Last week, the chief police inspector said police officers should “use their discretion” to decide whether to prosecute people who steal food.
But it is the effect of inflation on those accustomed to feeling comfortable that often makes it more politically unstable. More than the austerity policies and falling wages since 2010, it threatens the wealthy – the voters on whom the Conservatives depend. In the inflationary 1970s, they formed aggressive pressure groups, often from the far right like the Middle Class League, campaigning against “malicious” tax increases and “disproportionate suffering” from the price hikes imposed on entrepreneurs and freelancers, eventually contributing to the extremism of Conservative Party. Today, many members of the middle class are somewhat protected from inflation due to the high value of their real estate. But if the decline in real income also causes home prices to fall, the anger of the middle class will return.
Old scapegoats for inflation are less available. Unions are now smaller and weaker. Work is not in the government. There is greed and decadence in this country, but it focuses on Johnson Downing Street and his business interests. Inflation is destroying the status quo, and the status quo today is entirely conservative.
The process is not always fast. In the 1970s, before the change of government, there were years of high prices. If the current crisis continues, imagine an anti-inflation populist party forming and demanding price caps for much more energy. But our voting system will limit his chances. Meanwhile, the pandemic’s accelerating disappearance of physical money from our lives makes it easy not to think about how much our money has shrunk. As the sometimes dovish years after the financial crisis have shown, our country often responds to economic punishment less dramatically than pessimistic forecasters might like.
But in the end it reacts. After the financial crisis came the fall of the Gordon Brown government, the 2011 riots, the Corbyn, and Brexit. When the cost of living crisis is over, this may be a different country.