The huge increase in nPower energy prices announced on 4 January and likely to be followed throughout the energy sector – including an average 17% on gas prices with 27% in some areas – highlights major aspects the recession now engulfing the UK economy. There is a grave danger that the UK will now face stagflation – a stagnant economy with rocketing prices – of the type that Britain saw in the 1970s. Every economic crisis under capitalism is a further attack on the working class as the capitalists try to make the working class pay the cost of the crisis. Britain’s recession is likely to lead to major cutbacks in government spending, a squeeze on the public sector spending with major cutbacks, manufacturing slowdown, hundreds of thousands of redundancies and a major attack on public sector pay.
Energy price increases are going to hit especially pensioners, the low paid and other claimants. Coming at the coldest time of year in a country where hypothermia kills a staggering 30,000 (mainly old) people a year, these price increases reek of the cynicism and arrogance of the privatised utilities.
The gap between price increases and pay increases is now obvious to everyone. Rail prices have gone up 4.8% this January, food prices are sharply rising and continuing high interest rates have sent mortgage repayments sky high. Public sector pay increases of between 2% and 2.8% are nowhere near the real level of inflation, and the effect is that living standards are set to plummet.
Meanwhile the ultra-rich continue to become mega rich as directors’ salaries, share options and bonuses reach staggering levels. The average income of a director is now over £200,000 a year – and those of most major companies earn way above that. Big companies with international operations find ways of paying no tax at all in the UK – like Murdoch’s News International.
Marks and Spencer CEO Stuart Rose says his company’s poor Christmas performance is in part due to the polarisation of the economy, “the biggest I’ve ever seen”. Poorer sections of the working class find the retailer expensive, while the capitalist class want designer brands or even – since designer brands are so common – designer “super-brands”, which differentiate the seriously rich from the merely very well off. This Christmas season was an orgy of conspicuous consumption by the rich as slightly down City bonuses nonetheless pumped hundreds of millions into the hands of the rich.
The energy price increases highlight the way that finance capital under neoliberalism robs workers of their spending and saving power through high utility prices – much higher since the 1980s privatisation of gas, water and electricity. The energy giants say they’re losing money, but then they always do. What they really mean is that under the pressure of high oil and gas wholesale prices they want to maintain their huge profit rates. Moreover, European energy wholesalers use the light touch of the UK utility regulators to pump up charges to British utilities, turning British workers into a milch cow for vast international profits.
What has caused the slide into recession? The debacle of Bush’s Iraq war and threats against Iran is the most important cause of the increase in oil prices, a major factor in inflation. But the proximate cause has been the US Subprime crisis, a typical financial blow-out. The greed among banks and finance houses and their desire to return massive profits from the insanely high price houses in the US and, especially, Britain, led to a vast over-extension of insecure lending. Big losses in the financial sector have led to a cutback in lending; high interest rates have pushed up prices and reduced the spending power of ordinary people. As domestic spending slows, then manufacturing industry also slows down, as can be seen from the gloomy factory output figures in November last year, the latest available.
Increases in food prices are also the result of the transfer of a lot of corn production worldwide to produce ethanol as a substitute fuel for oil. George Monbiot rightly describes ethanol as a ‘lethal solution’ to greenhouse gas emissions.
Economists have predicted that the economic slowdown will hit government finances hard as tax income falls. Yet it remains an article of faith in Brown’s New Labour government (as it was under Blair) that tax increases for the rich will ‘discourage enterprise’. Meanwhile the super-wealthy are allowed to get away with tax ‘avoidance’ on a giant scale. Britain’s wealthiest retailer Sir Philip Green, whose BHS chain is just a small part of his empire, saves an estimated £300m a year because none of his businesses are owned by him – allegedly. Instead they are owned by his wife who claims to be resident in Monaco, and thus pays tax to the principality at the alarming rate of 0% a year!
Meanwhile Labour intends to make life much more difficult for all social security claimants, but especially the long-term sick and single mothers who stay at home to look after their kids. Many more of both groups will be forced into low-wage, insecure jobs. Many single mothers will, thanks to the new social security rules that Peter Hain wants to bring in, be worse off financially and take a very nasty double hit as they have to fund child-minding on reduced income.
Also hit by the current recession will be poorer sections of the middle class, the owners of shops and other small businesses who are being strangled by high interest rates and the squeeze on the availability of credit. Tens of thousands of them are going to go bankrupt because of this recession.
Minuscule pay increases in a period of sharply rising prices shines a spotlight on the failure of most trade union leaderships to organise any serious fight on the issue of pay. Union activists must ensure serious wage claims and a real fight in the next pay round. They should also being raising the demand for emergency cost of living increases as price rises bite.
But the recession also pinpoints New Labour’s utter prostration before the rich. In reality there is no conceivable reason why anyone at all needs more than £100,000 a year to live on. This is especially the case since most luxury consumption is environmentally wasteful or damaging. The rich corporations and rich individuals who system has caused the crisis must be made to pay for it, not the millions of hard pressed workers, pensioners and other vulnerable groups.