Even before the recent tax and price rises, government policy decisions have been impoverishing the majority of the UK population.

And of course those recent rises will only make life harder.

We need to demand that the government acts on behalf of its citizens:

  • If the government does not act, most families will suffer;
  • The government has an opportunity to help – in next week’s Budget;
  • We need to make sure they do.

If the government does not act, most families will suffer

What will be the impact of the food and energy price rises on the typical family in the UK?  There are no official forecasts, but Richard Murphy, Professor of Accounting at Sheffield University Management School, has analysed data from the Office for National statistics to derive a likely scale of impact. And his results are deeply worrying.

Murphy looked at the income and expenditure for families whose incomes are in the third decile (which is pretty close to being those earning a full-time minimum wage); those in the fifth decile (i.e. the ‘typical family’) and those at the ninth decile (the top 10%).  His conclusions are summarised in the chart below.

First, let us look at the position before the latest price rises. As the chart shows, those on the minimum wage have already been unable to match expenditure to income – just to survive, they have had to deplete their savings or go into debt. The typical family has also had great difficulty making ends meet. But those in the top 10% have, up to now, had a respectable surplus of around £9,000 that they could use to build up their savings.

Murphy’s analysis, even allowing for pay rises, shows that once energy and other prices are factored-in, families on the minimum wage will have an excess of expenditure over income of almost £4,000 or around 20% of what they earn after tax. This means that they will be earning 20% less than they need just to keep going.

We discussed in a previous article the role of financial wealth as a buffer against unexpected expenses; for those on minimum wage, their financial wealth was already low – probably around £1,000. The rises will wipe out any savings they may have had and force them into serious debt (if they can get it) or to reduce their spending dramatically. That means choices about whether to heat or eat, whether to maintain an internet connection, etc.

The situation for those near the median is better, but not much. After pay and price rises, a median family can expect a shortfall of around £3,600 or about 12% of their income after tax. They had, on average, financial wealth of around £6,000 – so the changes could wipe out their savings in under 2 years.

For the top decile, the impact is still significant, but on average they will still have a (much reduced) surplus of income over expenditure which can be used to build up their buffer of financial wealth.

And, as always, for the very wealthy, their capital gains will dwarf all of these issues – especially if they have investments in energy companies which are making super-profits at the moment.

In a nutshell, then, if the government does not help, most UK families will be pushed both into further reducing their expenditure – which means taking decisions they should not have to take like ending internet connections and failing to heat their houses – and into debt.

This means both widespread misery and serious damage to the economy as demand is further reduced.

The government has an opportunity to help – in next week’s Budget

Our government could protect the UK population in the way that other governments have protected theirs:

  • They could impose price caps – the French government has capped energy price rises at 4%; our price rises are expected to be more than 10x that figure because our government does not want ‘to deter investors’;
  • They could temporarily suspend VAT on energy – in Germany, the government has slashed a surcharge on bills used to support renewable energy schemes, which will instead receive extra state subsidies drawn from higher carbon taxes;
  • They could provide direct subsidies for households – as Italy has done.

Where other governments have supported consumers and small business and imposed windfall taxes and price caps on energy companies, ours has declined to act. Where others have supported their citizens, ours is leaving them to sink into debt – indeed Sunak’s so-called energy rebate is directly pushing UK citizens into debt.

Next week’s Budget is the chance for the government to do the right thing: to act in the interests of its citizens rather than its donors.

We need to make sure they do

Sunak constantly talks of being a ‘fiscal conservative’ – implying that the state of government finances makes it unaffordable for him to act. As we have pointed out many times before, this is simply untrue and bears no relation to the reality of the UK economy and the way government finances actually work. The level of government debt is not an obstacle to sound government. And it is inconceivable that Sunak is not fully aware of that fact.

As Richard Murphy points out:

“No debt, no tax and no borrowing paid for the £400 billion cost of COVID. Money creation by the Bank of England did. And what we know is that money creation of this sort did not create inflation in the previous 11 years, and nor is it, or will it, now.”

The myth of unaffordability, which the government continues to peddle, is the all-purpose excuse for not doing what the UK needs. In reality, our ability to spend and invest is constrained by the real resources in our economy, not by an imaginary inability to fund the spending and investment.

As John Maynard Keynes commented in 1942,

“Assuredly we can afford this and much more. Anything we can actually do we can afford. Once done, it is there. Nothing can take it from us. We are immeasurably richer than our predecessors. Is it not evident that some sophistry, some fallacy, governs our collective action if we are forced to be so much meaner than they in the embellishments of life?”

Things in some ways are worse now than in 1942: then the question was whether we could afford the embellishments of life; today we have a government which denies we can afford the basics.

Please write to your MP pointing out both the need for and demonstrable possibility of government action to help UK citizens through what will otherwise be a period of accelerating mass impoverishment and overall economic decline. These notes will help you.

If you think you might like to help more generally, or just to keep informed, please do sign-up and join the 99% Organisation.