Cost of Living

Motion to Take Note

Moved by

That this House takes note of (1) the increasing cost of living, (2) the level of economic resilience in the social capital of the United Kingdom, and (3) the case for Her Majesty’s Government to take further steps to address these issues.

My Lords, consider this family holiday in Britain today. Setting off for their luxury staycation in their brand new electric BMW, our family spends wearisome hours sitting in noxious traffic jams. They pass through pretty towns rendered ugly by dilapidated high streets and persistent potholes. At lunchtime, they enjoy an exquisite picnic hamper, complete with champagne, sat beside a handsome river—polluted with raw sewage. Unfortunately, their teenage son sustains a nasty cut from some broken glass and they spend hours that evening waiting in a crowded, understaffed A&E rather than enjoying their 5-star hotel. The car is vandalised overnight.

Noble Lords familiar with John Kenneth Galbraith’s book The Affluent Society will recognise that I have borrowed from his famous description of the coexistence of private affluence and public squalor. Galbraith also wrote:

“There is no blight on contemporary life so great as the enduring poverty in our great cities and of the still unseen poor in the rural regions.”

We are all aware that the British economy performed poorly after 2010, with the decade resulting in the lowest per capita growth rate since the war, and the second lowest rate of productivity growth in the G7. Then came the triumvirate of shocks of the past five years. Brexit, according to the OBR, has reduced long-run GDP by 4% per year—for ever. In the pandemic, the UK suffered the highest number of deaths and the poorest economic performance in Europe. Now we have the cost of living shock, derived from the toxic combination of Brexit, the pandemic and Russia’s invasion of Ukraine.

The UK has the highest rate of inflation in the G7. In these rankings, Britain fares worst—every time. The Minister may argue, quite rightly, that the pandemic and the war in Ukraine are global crises. However, she must explain why the UK is now battling it out with Russia for the title of the worst-performing economy of the G20. Why is Britain proving to be so lacking in resilience, compared with everyone else?

The Government must face up to the fact that the greatest damage to the UK economy—the damage that eroded our capability to stand up to these shocks and undermined national resilience—was inflicted by the austerity policies of the Conservative-led Administration since 2010. These are the very policies, by the way, that Mr Sunak declares are his desire to reinstate in his quest for a small state. This Conservative conventional wisdom attributes the national lack of resilience to limitations imposed on the so-called wealth-producing part of the economy—the private sector. We are told that it is the private sector that generates the wealth that provides the resources for the public sector; the dominant flow of wealth creation is one-way. It is the Chancellor’s oft-repeated belief that a successful private sector needs a low-tax, deregulated economy—just as he raises taxes, by the way.

My Lords, I thank the noble Lord, Lord Eatwell, for securing this debate. I will concentrate not on the whole panorama of government policy in its economic and political context, which he has done wonderfully, but on the number one issue of the day and the first part of his three-part Motion: the cost of living and inflation. I will make three points.

The first is about the seriousness of this situation. The inflation we have was totally unexpected. As we know, many—in fact, most—families are struggling at present with the cost of living, and low-income families are moving into destitution. The two consolations I have are that, first, whenever I turn on the radio at breakfast, one always hears of certain charities and community organisations helping people in need and, secondly, that the Chancellor of the Exchequer has now introduced two amendments to policies to help alleviate this situation. However, I have one concern: people are in such a situation that they are being forced into debt, with credit card loans and “Buy now, pay later” apps, and even into payday loans.

Some years ago, I chaired a commission for the then shadow Chancellor Oliver Letwin on the problems of low-income families getting into debt and what could be done about them. It was a very salutary commission to chair. The results of a Citizens Advice survey reckon that over 40% of people are borrowing simply to meet repayment. Can the Minister say what the Treasury is doing to make sure that the companies that can lend money in this way are acting responsibly in the loans they are providing?

My second point is that social capital is, in my judgment, absolutely crucial. I agree with the noble Lord, Lord Eatwell, that it is important in terms of public investment, but “social capital” as an expression was invented by James Coleman who was—to the best of my memory—a sociologist. Social capital is important in any society because it is really the foundation of our culture. It is the glue that binds us together as a society and it depends, more than anything else, on trust and trustworthy institutions.

I thank my noble friend Lord Eatwell for his incisive analysis, and it is a pleasure to follow the noble Lord, Lord Griffiths, whom I hold in enormous respect. CPI inflation at 9% is, in reality, 11% for households on low incomes who have to spend a higher proportion of their resources on energy and food. Inflation for them may hit 14% by the autumn. Families on exiguous wages and capped social benefits are in deep difficulty.

The noble Lord, Lord Griffiths, spoke rightly about how inflation is corrosive of trust. I suggest that the erosion of social capital—in the sense of strong social relationships and trust, which are a precondition of a strong economy—has been due above all to what proved to be excessive reliance since the 1980s on free market policies. Markets, for all their wealth-creating dynamic, are solvents of institutions, traditions and social bonds. The twin cults of individualism and competition have set all against all. As rewards to asset holders have exceeded the rewards to labour, there have been huge accumulations of private wealth, and inequality has reverted to the levels of a century ago. The wages of the disadvantaged and undefended in the labour market have stagnated and their lives have become more precarious. Young people see the system as stacked in favour of older generations. Toxic pathologies have been induced by such inequality. The effusion of national solidarity at the Queen’s Platinum Jubilee expressed a longing for a more solid sense of mutuality than is experienced in day-to-day life in Britain. Without it, our economy has been debilitated and lacks resilience.

Faced with a series of exogenous crises, the Government have made large-scale fiscal interventions. We are not in a good place. In 2021, the public sector net debt to GDP ratio was over 100%. We have exhausted the scope for quantitative easing that allowed government after the financial crisis of 2008 to borrow freely without affecting interest rates. Interest rates have already risen painfully, while the pound has weakened. The prospect for government outlays in interest payments, and for departmental spending limits, is grim. The Chancellor’s tax increases have hit the limit of what his party will tolerate. The labour market is tight. The outlook for growth, particularly in Britain, is darkening. Interest rates in the UK will rise yet further to douse inflation. The Bank risks precipitating recession, compounding social misery and choking off tax revenues.

Even if recession is averted, how can tax revenues be sustained, let alone increased, to enable us to address the fiscal implications of an ageing population and to fund decent services for all? A strong economy requires us to tackle our deficits in education, housing and the social determinants of health. Failure to invest in a timely transition to net-zero carbon and a green economy which generates plentiful good jobs would be catastrophic.

My Lords, I too want to thank the noble Lord, Lord Eatwell, for his excellent introduction to the debate. I was not going to say much about social capital. Like others, I was brought up on Robert Putnam’s Bowling Alone and reading his excellent work. I notice that the noble Lord’s analysis was very much on the economic aspect. From my perspective of having responsibility for over 400 churches across two counties, the voluntary aspect is also an important part of that work.

One of the things that I have observed over the last 40 years is that the decline in social capital is due to a whole lot of reasons, which we really ought to debate in this House, including things such as the Government’s attempts to professionalise volunteers. It has become increasingly difficult to find people to help. As an organisation that is running numerous food banks, debt advice centres, lunch clubs and breakfast clubs for children who are not going to get breakfast before school, we are very eager to be part of this, but it has got more difficult for us to deliver it. I must not stay on that too long, or I will be over my time.

The challenges we are facing are stark, starting with the massive increases in fuel and basic food costs. A Food Standards Agency survey has found that one in five people has recently either skipped or reduced the size of meals to reduce their costs. Our evidence coming in week by week at the food banks is that demand has grown massively. Nobody is engineering that; we are just getting the reports in week by week.

We do indeed need a strategy for the short and the long term. I think it is very good that the cost of living payment is going to be a welcome step to easing the pressure on those on the lowest incomes. I hope Her Majesty’s Government will look at other ways of giving immediate short-term benefits. Without that, there will be the most extraordinary crisis within a very short time.

My Lords, I am grateful to my noble friend Lord Eatwell for a brilliant speech. I also read his blog, which he issues every week. We go back a long way. We were friends before Labour came to power. He was one of the major architects of building the Institute for Public Policy Research, which was such an important body in giving influence to economic policies within the then Labour Government of 1997, and which of course produced so many Cabinet members as well.

As we come out of Covid and with all the additional problems now facing us, this may be an opportunity—I am primarily addressing my own party—for us to sit back and take a longer look, in a way that we have not done for quite some time, in determining what the party’s economic policy should be. I do not think I will persuade the Government to change their position much. I do not feel that the Government have learned a great deal from Covid, and there are some important lessons there which need debating—fundamental issues which have not been addressed, way beyond simply the health service.

Many people worked at home and had a different lifestyle for two years. We ought to spend a bit of time talking to people about that lifestyle change that they have gone through. Many of them do not want to go back to the work they had before, because it was poor quality and poorly paid, and they found that they were happier at home. A million people have disappeared out of the economy, and we need to get those people back in one way or another.

There is a way of getting them back in. Instead of constantly saying, “Get back to work! Get back to the office!”, is it not time that we started examining whether in fact people could work from home on a far greater scale than they have done in the past? People found they were happier, healthier, less stressed, and they were saving money on not travelling and on the very high costs of childcare that many face. These are all savings that could be made for people who are in financial difficulties if they are allowed and encouraged to work from home.

My Lords, it is a great pleasure to thank my friend, the noble Lord, Lord Eatwell. Like the noble Lord, Lord Brooke, I have known him for a very long time, and it is a great pleasure to be able to hear his erudition and the concern that he has always had. It was also a great pleasure to listen to my friend, the noble Lord, Lord Griffiths. I commiserate with the Minister, because she has only one good Tory friend on the Back Benches taking part in this debate, but I am sure that she will bounce back and give the answer that she has prepared.

I want to concentrate my six minutes on something that I think is worth remembering. We have been through this before. In the 1970s, when the oil price quadrupled, we had a supply shock in the energy sector like we are having now. At that time, a lot of things changed in our lives. First, we had stagflation for a very long time, with very high unemployment. That was when the consensus on a one-nation politics changed. The Butskellism collapsed, and we very soon had Thatcherism.

One thing I will say in defence of Thatcherism is that it was not all about cutting taxes. People have very short memories. They do not remember that the 1970s were very hard on the economy. When Mrs Thatcher got into power in 1979, the first thing that Geoffrey Howe did was to double VAT rates from 8% to 15%, if I remember correctly; it was not 16%, because they did not want to have vindicated the allegation that Labour had made that they would double VAT. They did not quite double it; it went from 8% to 15%. Then we spent all the North Sea oil revenue and all the proceeds from selling public industries on financing unemployment benefits. The tax cuts came only at the end of the 1980s. Mrs Thatcher waited quite a while before she knew that tax cuts were affordable. Right now, they are not affordable—let me say that here and now. People have already said that we need much more money for health and social care; we need much more money to restore a lot of social capital. It would be an incredible folly for the Government to listen to their Back-Benchers who are clamouring for tax cuts. What tax cuts always mean are tax cuts for the rich; they are never for the poor. The poor have wage cuts; the rich have tax cuts—that is the way this kind of policy works.

My Lords, I find this debate more intimidating than any other in which I have taken part, because I am surrounded by eminent professors. I recently threw away my undergraduate economics essays. It was a bit of a shock to see what appalling marks I received. Therefore, I suggest that these remarks are tentative, in case they receive another poor mark.

Tentatively, I make a simple point. I characterise inflation as a class issue, which has a corrosive effect on social capital. The first-order effect of inflation is to redistribute income and capital. There are second-order effects, which the noble Lord, Lord Griffiths, set out so clearly for us, but the key effect of inflation is to redistribute, and, of course, it redistributes from the poor to the rich. Over the years some of us have done well out of inflation. I include myself in that group. It is a lot more complicated than this, but to express it at its simplest, lower-income groups depend more on essentials, which are more affected by inflation, so they suffer the most. There has been discussion about this in the press but the evidence is clear that the things that are going up in price affect low-income individuals and families most.

This is impacting on low-income workers, who have suffered a standstill, if not a fallback, in their incomes over the last 10 years. This is not following a period of growth. It is the culmination of a period in which people in the groups that I am talking about have not seen their income increase. Real wages are currently falling more quickly than in any modern times.

It is ridiculous in these circumstances to argue, as central bankers and others have done, that we are verging into a wage-price spiral. The big difference between now and the 1970s, as outlined by the noble Lord, Lord Desai, is that trade unions are much weaker now than they were in the 1970s. This has a big impact on the ability of working people to defend their living standards.

My Lords, I have a confession: I do not know the noble Lord, Lord Eatwell, at all—I deeply regret that, obviously—but I thoroughly enjoyed his panoramic exposition of the Government’s failings. It occurred to me that we could carry on listening to them all day, and there would be a lot of fun in it for me, except that some of it is incredibly painful. For example, the damage that this Government have done to schools, social housing and the NHS really hurts me because those things had an enormous impact on me, growing up.

My father and my mother told me horror stories of the poverty they both grew up in. My father was born in 1905 in south Wales. He was fatherless at the age of eight because of the Senghenydd mining disaster. He walked all the way to London with one of his brothers to find a job. When I was growing up in the 1950s and 1960s, they told stories about living in a council house with an indoor loo, a bath and a larder that they could keep their food cool in. They could also go to hospital if they hurt themselves and I, and my older brother, were able to go to school to learn and then to go on to university. These things that the Government have damaged really make me angry.

What we hear again and again from this Government is that they put forward their ideas, some of them—I do not want to say “mad” because that almost diminishes it—stupid, incomprehensible and incoherent; for example, sending migrants to Rwanda or bringing back imperial measures, which we have never lost anyway. The noble Lord, Lord Eatwell, mentioned sewage discharges. We in this House amended a Bill so that not only would sewage discharges be illegal but companies would be forced to stop them. The Government took that out. They voted for illegal sewage discharges which damage our ocean. The economic cost of that is huge in terms of human and ecosystem health.