Cost of Living

Lord Davies of Brixton Excerpts

Thursday 9th June 2022 Lords Chamber

[Lord Davies of Brixton (Lab)]

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.

We are suffering not from wages being too high, but from them being too low. The problems we face, the causes of inflation, will not be addressed by holding back wages and resisting wage demands. That is the instinctive reaction of a Conservative Government, but what working people need now is pay increases. That will reduce the inequitable impact of inflation and as a result reduce its impact on social capital. Wage increases are part of the solution, not the problem.