Cost of Living: Public Well-being

Lord Howarth of Newport Excerpts

Thursday 20th October 2022 Lords Chamber

[Lord Howarth of Newport (Lab) [V]]

My Lords, the cost of living crisis, so catastrophically intensified by Liz Truss and Kwasi Kwarteng, has been developing for a long time. It was an illusion that inflation had been abolished. Eventually, printing money on an industrial scale by quantitative easing unleashed inflation and central bankers were wrong to suppose it would be transitory. Inflation generates inequality. More than a decade of QE led to a gross inflation of asset prices and vast inequalities of wealth. We know from the research of Kate Pickett and Richard Wilkinson that more unequal societies suffer more severe pathologies in physical and mental ill health, the well-being of children, teenage pregnancies, drug abuse, violence, prison populations, destruction of trust and of community life.

Combining monetary laxity with fiscal austerity, the policy choice of David Cameron and George Osborne, led to a harsh and damaging erosion of public services and physical environments. We know from the research of Michael Marmot that poor conditions in which people are born, grow, live, work and age are social determinants of poor health and well-being. Poverty brings anxiety and depression, and people in poverty have suffered more from Covid. The Health Secretary has suppressed the health disparities White Paper, but the Government should acknowledge this. A deregulated private sector and an obstinately misplaced faith in trickle-down economics—the creed of Prime Minister Truss—have produced a long-term stagnation of wages and, in combination with a pitiless scaling down of the social security system, the emergence of a gig economy and a precariat who live in chronic insecurity and economic stress. In-work poverty has become normalised.

The Conservative emasculation of the welfare state—most recently Rishi Sunak’s cut to universal credit, but worse is now threatened—has meant that more and more people have had to rely on food banks. The food banks now report that they are in crisis, dealing with unprecedented demand. People on lower incomes spend a larger proportion of their resources on the items whose cost have shot up the most: food and energy. Food inflation—inflation for the poor—is now around 14%. People are driven to cross off their shopping lists healthier items that have become even more unaffordable. The Food Foundation charity reports that, in September, nearly 20% of low-income families experienced food insecurity. A very worrying number of people say that they have not eaten for a whole day. Professor Marmot warns that the alarming increase in hunger points towards more stress, mental illness, obesity, diabetes and heart disease for those who are worst off.

QE also wrecked the housing market by hugely boosting the prices of homes and rendering it impossible for people on modest incomes with modest savings to buy, or even to rent, a home in large parts of the country. Not to have a secure roof over one’s head, and to despair of entering that state, is profoundly inimical to well-being.

Since 2010, there has been no effective strategy to tackle our central economic problem of poor productivity. Without a strategy for productivity—how are the Government to pay for it now?—we have no prospect of non-inflationary growth and increasing prosperity for all. On top of all these failures, the post-Brexit transition to a new trading relationship with the EU has been handled ineptly. Then came Covid, hammering business, employment and the national finances, as well as creating widespread fear, grief and impoverishment. After that came Putin’s invasion of Ukraine, with a further colossal disruption of trade and the disastrous increase in energy costs. So Liz Truss and Kwasi Kwarteng are not the only authors of our present national predicament, but what these callow politicians have done is criminal: at a juncture when sensitivity, caution and competence were crucial, they arrogantly, heartlessly and idiotically made our predicament vastly worse. Their fiscal recklessness has caused the pound to weaken, importing more inflation, and the cost of borrowing has soared for the Government, businesses and home buyers, in what the markets are calling the Truss premium.

At least another £35 billion of spending cuts or tax rises are required. In 2010, cuts in spending were accompanied by monetary easing; the consumer prices index in 2010 was 3%, whereas now it is over 10%. In 2022, we have to look forward to both fiscal and monetary austerity and deep recession, with all the pain and fear that this will bring. People whose pay falls far behind inflation are going to be hungry, cold and frightened.

Throwing away the reputation not just of the Conservative Party but of Britain for financial prudence, resolute control of inflation and competent economic management will cause our country to be poorer and those who are most vulnerable to live in greater poverty and insecurity for a long time to come. The cruelty of the Prime Minister’s hints and throwaway lines—for example, about de-indexing benefits and ending tenants’ security—has been chilling.

To people on the margin, an assault on their living standards will make them sick with anxiety. It will also make them bitter about inequality and the contempt they discern on the part of those who are comfortable and those who govern them. Inflation dissolves the ties that should hold our society together. It robs people of the real value of their income, their savings and such security as they have. It generates mistrust, resentment and fear.

If we are denied a general election, which is clearly what is required given the collapse of the Government and the rotten state of the Conservative Party, we must hope against hope that the new Chancellor and the new Prime Minister will reshape policy to ensure that financial stability and the trust of the markets are restored; and that in the grim process of retrenchment, the broadest backs carry the heaviest burdens and the neediest are protected, while an intelligent strategy for economic reconstruction, with due focus on well-being, is implemented. We need a Labour Government to do this.