Corporate Profit and Inflation

I beg to move,

That this House has considered levels of corporate profit and inflation.

It is a pleasure to serve under your chairship, Sir Mark. I secured this debate because the discourse on inflation in Parliament, in Government and in the Bank of England has been dominated by the need to curb workers’ wages. Government policy has focused on driving down workers’ real wages. In the words of the Bank of England’s chief economist, people should just

“accept that they’re worse off”.

That approach has ignored the elephant in the room—the role that corporations are now playing in driving up inflation through price hikes designed to boost their profits. There is mounting evidence that such corporate profiteering is playing a very significant role in the latest wave of inflation. It has been called many things: price gouging, profiteering and, most commonly, greedflation. The US Senate Committee on the Budget has held a special hearing on this subject, but there has been very little focus on it in Parliament so far. Today, that situation changes. I believe that this is the first specific debate on greedflation in this House. It should not be the last one. Indeed, I hope that this debate kicks off a serious discussion in this House about how we tackle greedflation.

Of course, higher inflation since late 2021 has been affected by big problems in supply chains, as a result of post-covid trade disruption and the war in Ukraine. However, two excellent studies have highlighted how soaring profits are now having a big impact. The Institute for Public Policy Research and Common Wealth think-tanks have shown that profits were up 34% at the end of 2021 compared with pre-pandemic levels and that nearly all of that increase in profits was due to just 25 companies. As the IPPR has recently said:

“It’s time for policymakers to look at ‘greedflation’ and prioritise reining in corporate profits, instead of blaming workers’ wages for driving up inflation.”

Using the latest available figures for the largest 350 companies on the London stock exchange, Unite the union has shown how profit margins for the first half of 2022 were nearly double—89% higher—than for the same period in 2019, before the pandemic. Unite’s report finds that in the last six months company profits are responsible for almost 60% of inflation. As its general secretary, Sharon Graham, correctly states:

“Make no mistake, profiteering has resulted in the high prices we’ve all had to pay”.

I pay tribute to those organisations for bringing attention to this issue. For example, Unite the union has secured press coverage for its recent study. However, I fear that the Government, in their reply, will simply dismiss these studies as coming from left-of-centre organisations and will plough on regardless. Therefore, I want to use the next part of my speech to focus on how this issue goes well beyond the centre-left and is now a mainstream debate. The financial press, investor bodies and central bank officials are openly discussing how corporate profits are, in fact, driving inflation. It seems that it is just the Government who are ignoring this issue.

Let us look at some of the recent headlines in the financial press. One Financial Times headline said:

“‘Greedflation’: profit-boosting mark-ups attract an inevitable backlash.”

A Wall Street Journal headline said:

“Why Is Inflation So Sticky? It Could Be Corporate Profits.”

That article went on to explain:

“Businesses are using a rare opportunity to boost their profit margins.”

MoneyWeek, the UK’s best-selling financial magazine, had a piece entitled:

“What should we do about greedflation?”,

which noted:

“Companies’ price hikes have been driving inflation.”

Fortune said:

“‘Greedflation’ is the European Central Bank’s latest headache amid fears it’s the key culprit for price hikes”.

Meanwhile, an Investors Chronicle headline said:

“‘Greedflation’ is only making things worse”,

adding:

“Business using inflation as cover for unjustifiable price hikes are on borrowed time”.

Likewise, economists and investment strategists are openly saying that corporate profits are driving price hikes.

I thank my hon. Friend for raising the issue of corporate greed. The spotlight has been shone today on the crisis of unaffordable baby formula, with parents forced to steal or settle for black market alternatives, putting the health of their babies at risk. Given that the revenue in the baby food segment of the UK food market is set to increase by £265 million, or nearly 15%, over the next four years, will my hon. Friend join me in calling on the Minister to put an end to the scandalous profiteering that takes money directly out of desperate parents’ pockets and into shareholder profits, fostering a public health crisis whose repercussions we will suffer for decades to come?

As ever, my hon. Friend makes the point about what is really happening out there. She gives a powerful example about baby food. I will come on to food and a policy suggestion for price caps later.

The chief economist of UBS global wealth management, Paul Donovan, has stated that

“much of the current inflation is driven by profit expansion. Typically one would expect about 15% of inflation to come from margin expansion, but the number today is probably around 50%.”

Albert Edwards, the global strategist at Société Générale, one of the largest financial services groups in Europe, tweeted:

“More Greedflation? When are government going to force a halt to this price gouging?”

Elsewhere, he explained how companies have

“under the cover of recent crises, pushed margins higher”.

In more technical language, but saying the same thing, Goldman Sachs economists said of the eurozone:

“Unit profit growth now accounts for more than half of GDP deflator growth, with compensation per employee growth explaining a little over a third.”

Central bankers are also raising concerns. In fact, the European Central Bank’s Fabio Panetta said that

“there could be an increase in inflation due to increasing profits.”

He has also said that

“unit profits contributed to more than half of domestic price pressures in the last quarter of 2022”.

Meanwhile, Lael Brainard, formerly of the Federal Reserve and now a White House official, said:

“Reductions in markups could also make an important contribution to reduced pricing pressures.”

I congratulate my hon. Friend on securing this debate and his excellent speech. He is reframing the whole debate, which is incredibly important.

According to the Office for National Statistics, during the 12 months to March the price of food and non-alcoholic drinks rose at its fastest rate in more than 45 years. Cheese was up 44% and the average price of bread and cereals increased by 19.4%. My hon. Friend is discussing what the economists are talking about now: greedonomics. Does he agree that that will chime with people out there in the shops, trying to feed their families? We all have casework involving people who simply cannot afford to put the food that their children need on the table.

As always, my hon. Friend makes an important point. I will come on to that in the remaining passages of my speech, because people out there are really feeling in their day-to-day lives the consequences of this greedflation and the opportunistic pushing up of prices by so many companies.

In the United States, an Economic Policy Institute study found:

“Corporate profits have contributed disproportionately to inflation”,

and that

“over half of this increase…can be attributed to fatter profit margins, with labor costs contributing less than 8% of this increase. This is not normal.”

Let us take a moment to note that a broad range of officials at UBS, Unite the union, Goldman Sachs, the ECB and the US Economic Policy Institute are all suggesting that over half of the current price mark-up is to do with profiteering.

My hon. Friend is making some excellent points. Is he aware of comments made last month by the International Monetary Fund’s chief economist, Pierre-Olivier Gourinchas? He said that he remains “unconvinced” that we should be worried about the risk of a wage-price spiral, highlighting that wage inflation continues to lag far behind price inflation, while profit margins have “surged”. Does my hon. Friend agree that the Government should be exploring all avenues to boost wages, including a £15 an hour minimum wage, above inflation public sector pay rises and, of course, scrapping anti-union laws?

I have to say—and this will come as no surprise—that I agree with my hon. Friend’s three policy demands. A £15 an hour minimum wage is more necessary now than ever before. When people first started talking about it, we of course supported it then. Fewer and fewer people can argue against that policy now. Of course, the anti-trade union laws need scrapping. It is wrong to suggest that it is workers’ wages that have been driving inflation. I hope this debate gets people in this place talking about what a lot of economists, who are certainly not on the left, have been talking about—namely, greedflation.

I will move on to some solutions. While workers’ real wages continue to fall, the Financial Times recently noted that across western economies, profit margins reached record highs during 2022 and remain historically high. It is increasingly clear that some corporations are hiking prices to gain those profits, and it is that, not wages, that is a major cause of the inflation crisis. What should be done about that? In the words of Robert Reich, the prominent economist and former US Secretary of Labor under Bill Clinton:

“To control inflation, we must take aim at corporate profits, not working people.”

I have three proposals. First, there should be an excess profits tax. The kind of tax we have seen on the super-profits of oil and gas firms should now be extended to all the other sectors of the economy making excess profits from this crisis at the expense of ordinary people. That would send a clear message to those companies that their profiteering must stop. There has rightly been a huge focus on the eye-watering profits of energy firms, though the Government’s windfall tax has failed to deal with that properly and should be amended to close all the loopholes.

Excess profits are in evidence in other sectors, too. The five big banks have reported soaring profits, as they take advantage of high interest rates. Supermarkets, food manufacturers and agribusinesses have benefited from profit spikes recently. The Treasury should set up a special unit for this excess profits tax that could go after all those companies that are blatantly profiteering, ripping off customers, fuelling inflation and deepening the cost of living crisis.

My hon. Friend is being very generous in giving way. Does he agree that it adds insult to injury that so many of these companies are not paying decent wages to their staff? On the one hand, they are making massive profits, essentially ripping off consumers, and on the other they are not paying the rates they should to the people who actually do the work.

That is absolutely right. It is scandalous when workers are not fairly paid, the public are being ripped off, and all this profiteering is causing the price crisis that we see. It is not for nothing that people call it greedflation.

On price caps, for all its obvious flaws in not being set low enough, the Government’s energy price guarantee, which was introduced last year, was an important break with the idea that the Government cannot interfere in market pricing to protect people. Surely such price caps should be extended to other sectors. It is very welcome that London Mayor Sadiq Khan has called for powers to allow him to impose private rent controls in London. Other countries do this, so why can we not do so here? On soaring food prices, the French Government have secured a deal with some of the country’s major retailers to place a price cap on staple foods to ease the pressure of inflation on consumers. Why not here?

Is it not absolutely perverse that in the fifth richest economy in the world we are seeing, on the one hand, supermarkets and retailers making billions and billions of pounds and, on the other, parents criminalising themselves by stealing baby formula because they cannot afford to feed their newborns? What on earth has gone wrong in this country?

That is exactly right. That state of affairs is completely perverse in one of the richest countries on earth.

I mentioned that the French Government have secured a deal to place a price cap on staple foods to ease the pressure of inflation on consumers. Why can we not do that here? The public backs it. A poll last year showed that 71% of voters support price caps that place limits on what companies can charge for certain goods and services such as energy, housing and other essentials, including food. That 71% even included the overwhelming majority of Conservative party voters.

My final point is about the need for public ownership. Returning energy, rail, water and other key utilities to public ownership, to be run for people and not profit, is the best way of ensuring a permanent end to the profiteering that so many of these privatised companies are gratuitously engaged in. I hope the Minister will respond by admitting what all the leading economists and financial institutions say about greedflation, and I hope that today’s debate is the start of the Government listening and Parliament talking more about the fact it is greedflation, not workers’ wages, that drives inflation. Corporate giants are taking advantage in the most heartless way, using this crisis as an excuse to hike up the prices of essentials. As ever, it is ordinary people who pay the price.

Order. I remind Members that they should bob if they wish to be called in the debate. I can see at least four people bobbing.

It is a pleasure to serve under your chairmanship, Sir Mark. I congratulate my hon. Friend the Member for Leeds East (Richard Burgon) on securing this important debate. In the short time available, I will echo many of the excellent points set out in my hon. Friend’s opening remarks.

The false narrative being perpetuated by the Government that wages are driving up inflation is misrepresentative of the reality facing many of my constituents in Blackburn. The Government have argued that workers should accept pay restraints to manage inflation, but substantial research suggests that corporate profiteering and so-called greedflation, not wage levels, are fuelling the inflation crisis. There is a clear disparity between the Government’s narrative and reality. Only today we learned that shareholders of the failed TransPennine Express received a £15 million bonanza last year, while people in the north-west could not get a train.

A report into profiteering by Unite the union in March revealed that the 2021 profit margins of the FTSE 350 jumped 73%. For the first half of 2022, they were 89% higher than the same period in 2019. Meanwhile, working people cannot afford to heat their homes or feed their families.

The huge recent profits of major oil and gas companies are well known. Leaked Treasury forecasts—they should not be leaked; they should be public knowledge—stated that producers and electricity generators could make excess profits of up to £170 billion over two years, yet time and again we hear the Government say we cannot afford many basic services. Meanwhile, 16.6% of households in Blackburn are living in fuel poverty. That is higher than the national average of 13.2% and the regional average of 14.4%. A proper windfall tax, which Labour would introduce, is urgently needed to address this. The Government’s actions do not go far enough, and it is disappointing that no Conservative Members are present to hear the shocking statistics that have been repeated today.

We have talked about food poverty. Only today, when faced with a question about the fact that the cost of making a cheese sandwich at home has risen by 37%, we heard an ex-Conservative MP respond by saying, “If you cannot afford a cheese sandwich, don’t make one.” That is so out of touch with the reality of how families are struggling to feed their children. It is disgraceful.

The Trussell Trust’s annual statistics paint a dark picture. In 2022-23, almost 350,000 food parcels were delivered in the north-west. That is up significantly from approximately 200,000 in 2017-18. The most recent survey carried out by the Bakers, Food and Allied Workers Union found a shocking increase in food insecurity among members. It reported an increase in food bank usage from 7% to 17%, while those who reported relying on friends and family went from 20% to 34%. Some 55% said they have skipped meals to feed their children. The survey points to a clear disparity between supermarket profits and the experience of those working and shopping at supermarkets.

It is a pleasure to serve under your chairmanship, Sir Mark. I congratulate my hon. Friend the Member for Leeds East (Richard Burgon) on securing this important debate and giving us an opportunity to shine a light on the lie that it is workers’ wages that are driving inflation, rather than the profiteering of big business. The truth is this is not just a cost of living crisis. There is no doubt that it is a crisis for the working class and for millions of people struggling to make ends meet across the country, but it is not a crisis for big businesses and the super-rich. For them, it is record profits, a record number of billionaires and record wealth for the top 1%. It is a cost of living crisis for the many, but a bonanza for the few.

An investigation by Unite the union found that the profit margins for FTSE 350 companies rocketed by 73% between 2019 and 2021 and were up an even more staggering 89% in the first half of 2022. From the well-known, obscenely high windfall profits of the oil and gas giants BP and Shell to the supermarket chains Tesco, Sainsbury’s and Asda, which saw a 97% increase in profits between 2019 and 2021, big businesses have seen their profits soar, but that is just one side of the coin.

On the other side are soaring prices for our constituents: energy bills through the roof, roughly doubling in 12 months; food prices up nearly 20%; rent inflation at eye-watering record levels; and mortgage payments continuing to rise. It is no wonder that living standards are set for the biggest fall since the 1950s, with the real value of wages falling at the fastest rate on record.

Let me be clear: wages have been lagging well below price rises, so they cannot be their fundamental cause. This is not wage-price inflation. It is something else, and that something else is greed inflation—inflation driven not by workers’ wages but by corporate greed. Big businesses are exploiting droughts and wars, post-pandemic demand and supply-side shocks from climate breakdown. That is, in effect, what even the likes of the International Monetary Fund and the European Central Bank have said. They both asked whether wages were driving higher prices, and both found that explanation wanting. Instead, the ECB found that profits contributed to two thirds of the rise in inflation in 2022 alone, having been responsible for just one third in the previous two decades.