By Daragh Logue
The cost of living crisis as we know it emerged from the Covid-19 pandemic, but the trends that gave way to it rest further in the past. After the 2008 financial crisis, the Conservative government elected in 2010 enacted several “austerity budgets” – attacking public sector pay, the health service, education, and benefits among other services that working class people fought for. This led to a massive drop off in living standards; life expectancy flatlining for the first time ever, child poverty on the rise, and a national health service in crisis.
Once the pandemic began in 2020, the government was forced to act to stave off a near societal collapse, introducing furlough schemes, greater funding for the NHS and cheap lines of household & business credit. The idea was to keep the economy on life support, until such times as people could safely return to work.
As the pandemic showed the most subtle signs of easing, the government began pulling its support schemes. However, the first inklings of the cost of living crisis were beginning to take hold; inflation would begin to become a problem. According to Eurostat, domestic energy costs rose nearly 60% in the last half of 2021, and this would only be the start of an inflation crisis that would encapsulate all consumer goods. While the war in Ukraine has undoubtedly been a catalyst for inflation, driving up prices of gas and food, it is not the only factor. With energy giants like BP reporting more than double their profits in 2023 – raking in £23 billion – rampant profiteering is playing a major role. A Unite report in the inflation spiral illustrated that the jump in UK wide company profits is responsible for 58.7% of inflation we experienced.
To combat inflation, the Bank of England has seen fit to raise interest rates to levels not seen since the 1990s. In their logic, this has a dual effect; encouraging saving in deposit accounts, and also increasing the price of getting a loan, both things that attempt to cool off demand and therefore price rises in the economy. However, it is hard not to see the class element to this.This policy has a direct impact on people’s daily lives and tends to impact the working class and poor the hardest. Due to poverty wages, many working-class people are forced to rely on credit just to make ends meet. Raising interest rates increases the price of debt and will make it unsustainable for many.
After 2021, many sectors were having labour shortages, and workers across the board were demanding pay increases. Labour shortages in key sectors gave us the power to demand higher pay rises without fear of layoffs or redundancies. With a rising labour force, from the point of view of Capitalism, it made sense to raise interest rates to force debt-laden businesses out of the market; making more workers unemployed and adding to the pool that would take a job for less pay, just to get employed again.
This isn’t to even mention the housing crisis that exists in large cities in the UK and Ireland. House prices are at an all time high, with the UK average now sitting at £296,000. Additionally, rental increases for 2021-2022 are put at just below 30%. It is clear that some of this is landlords cashing in on the general feeling of everything becoming more expensive, but it is also reflective of mortgage costs increasing as a result of rising interest rates.
Signs of inflation falling will bring little comfort. This will slow price rises but will not bring them down. Real wages aren’t expected to return to early 2022 levels until the end of 2027 meaning there will be little alleviating of the cost of living unless workers win serious pay rises.
The very forces that got us to this point: financialisation, austerity and greed, are all products of Capitalism seeking to increase profits. The underlying root causes of this crisis have not gone away, and it is safe to say that the period of war, industrial struggle and economic downturn that lies ahead of us will lead to a greater intensity of attacks on the working class. This is the harsh reality of capitalism. They cannot end the cost of living crisis because to do so would mean challenging the profits of the billionaires. Food and energy are at the epicentre of the current inflationary crisis. These and other key sectors should be brought into public ownership immediately. Rather than being run in a top-down manner like private companies by faceless bureaucrats, they should be run democratically by elected representatives of those who work in these sectors and the wider working class in order to ensure efficiency and to ensure they function to meet society’s needs.