Who is to blame for the cost of living crisis? | thearticle

We are going to be poorer. That was the underlying message of this week’s Spring Statement — a Budget in all but name — by the Chancellor. Higher taxes, lower growth and above all soaring

inflation will combine to cause the largest fall in living standards for a single year since records began in 1956. The nation is reeling from the delayed impact of measures to cushion us

from the pandemic, the financing of which by the Bank of England has fuelled the fastest price rises for 30 years. And the global energy crisis, greatly exacerbated by the war in Ukraine, is

hitting the entire economy. Beset by such a perfect storm, Rishi Sunak’s package inevitably seems inadequate. Tinkering with thresholds cannot disguise the fact that the overall tax burden,

at well over 36 per cent, is now higher than at any time since the 1940s. The worst of it is not just that most of us will be poorer, but that there will be many more poor families. Some

estimates of the disproportionate impact of high inflation on the poorest income groups suggest that they will suffer an 8 per cent cut in living standards. Energy costs will fall as the

weather improves, but by next autumn they will be rising again to unaffordable levels. We must expect to see many more telltale signs of real poverty: homelessness, food banks, begging and

drug dependency. We can also expect more conflicts between employers and employees, of which the ugly P&O ferry dispute may be a harbinger. Public sector unions will strike to preserve

their salaries against inflation, while the private sector will pass on higher labour costs to the consumer in the form of price rises. For the over-60s, some aspects of the present cost of

living crisis are all too reminiscent of the 1970s. Then, too, a complacent attitude to the money supply allowed inflation to get out of control. Energy prices multiplied after the 1973 Yom

Kippur War prompted OPEC cartel of oil producers to penalise their Western customers. Industrial disputes crippled the economy, public spending and taxes rose sharply, the Labour Government

ran out of money and credit. Having just joined the European Economic Community, as it then was, Britain found itself ridiculed abroad as “the sick man of Europe”. Not all of this applies

now. The present Government has not presided over anything like the levels of poverty or industrial strife seen in the Seventies. Nor is there any problem about borrowing — except for the

cost of interest, now running at £83 billion a year, roughly twice our anaemic defence budget. We are unlikely to witness anything as humiliating as Rishi Sunak flying to Washington to beg

for a loan from the IMF, as his predecessor Denis Healey did in 1976. Neither a Three Day Week nor a Winter of Discontent is on the cards — though the police would be well advised to be on

guard against a repetition this summer of the riots of 2011 or other violent forms of protest. The underlying strength of the economy means that though this year may be an _annus horribilis,

_the long-term prospects are brighter. The overriding priority must be to get inflation under control, at all costs. The Bank of England deserves much of the blame. Despite the statutory

duty of the independent Bank to keep inflation below 2 per cent, Governor Andrew Bailey and his colleagues failed to read the danger signals and to take timely action — even though some

respected economists had been warning them for years. Perhaps the first to raise “the spectre of inflation” was Brian Griffiths, writing here in _TheArticle _in August 2020. Lord Griffiths

then called on the Treasury to “confirm its commitment to the 2 per cent inflation target, publicly endorse the operational independence of the Bank of England, and produce a convincing plan

to show how the deficit can be financed without excessive money creation”. The Chancellor did none of these things. Instead Rishi Sunak and Andrew Bailey have indeed between them resorted

to excessive money creation through Quantitative Easing, a measure that may have been appropriate after the 2008 financial crisis but was singularly inappropriate during the pandemic. As

Stephen Beer argued here last week, this was a “panic move” by which the Bank in effect printed the money to pay for hugely increased Government spending. Now the bills are coming in. Bailey

and Sunak must bear joint responsibility for the cost of living crisis. Both have their excuses, more or less plausible, but politics is unforgiving. Both Governor and Chancellor are now on

borrowed time. How trivial what were until recently the obsessions of the Westminster bubble now seem, compared to the real hardships faced by millions in this country and the existential

struggle for survival of the Ukrainians. Hitherto the Government has handled the war well. That success does not excuse two unfortunate lapses of taste by Boris Johnson. He should not have

mentioned the war in Ukraine in the same breath as Brexit at the Conservative Spring Conference, nor been caught smirking yesterday while the Chancellor spoke about that war. The Prime

Minister will survive these lapses, as he has survived “Partygate”, but cumulatively they convey an impression of frivolity at a time when the public expects better. Today’s NATO summit

gives him a chance to redeem himself. Don’t blow it, Boris. A MESSAGE FROM THEARTICLE _We are the only publication that’s committed to covering every angle. We have an important contribution

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