Corporate Profit and Inflation

Margaret Greenwood Excerpts

Tuesday 16th May 2023 Westminster Hall

[Richard Burgon]

As ever, my hon. Friend makes the point about what is really happening out there. She gives a powerful example about baby food. I will come on to food and a policy suggestion for price caps later.

The chief economist of UBS global wealth management, Paul Donovan, has stated that

“much of the current inflation is driven by profit expansion. Typically one would expect about 15% of inflation to come from margin expansion, but the number today is probably around 50%.”

Albert Edwards, the global strategist at Société Générale, one of the largest financial services groups in Europe, tweeted:

“More Greedflation? When are government going to force a halt to this price gouging?”

Elsewhere, he explained how companies have

“under the cover of recent crises, pushed margins higher”.

In more technical language, but saying the same thing, Goldman Sachs economists said of the eurozone:

“Unit profit growth now accounts for more than half of GDP deflator growth, with compensation per employee growth explaining a little over a third.”

Central bankers are also raising concerns. In fact, the European Central Bank’s Fabio Panetta said that

“there could be an increase in inflation due to increasing profits.”

He has also said that

“unit profits contributed to more than half of domestic price pressures in the last quarter of 2022”.

Meanwhile, Lael Brainard, formerly of the Federal Reserve and now a White House official, said:

“Reductions in markups could also make an important contribution to reduced pricing pressures.”

[Margaret Greenwood (Wirral West) (Lab)]

I congratulate my hon. Friend on securing this debate and his excellent speech. He is reframing the whole debate, which is incredibly important.

According to the Office for National Statistics, during the 12 months to March the price of food and non-alcoholic drinks rose at its fastest rate in more than 45 years. Cheese was up 44% and the average price of bread and cereals increased by 19.4%. My hon. Friend is discussing what the economists are talking about now: greedonomics. Does he agree that that will chime with people out there in the shops, trying to feed their families? We all have casework involving people who simply cannot afford to put the food that their children need on the table.

[Richard Burgon]

As always, my hon. Friend makes an important point. I will come on to that in the remaining passages of my speech, because people out there are really feeling in their day-to-day lives the consequences of this greedflation and the opportunistic pushing up of prices by so many companies.

In the United States, an Economic Policy Institute study found:

“Corporate profits have contributed disproportionately to inflation”,

and that

“over half of this increase…can be attributed to fatter profit margins, with labor costs contributing less than 8% of this increase. This is not normal.”

Let us take a moment to note that a broad range of officials at UBS, Unite the union, Goldman Sachs, the ECB and the US Economic Policy Institute are all suggesting that over half of the current price mark-up is to do with profiteering.

[Richard Burgon]

I have to say—and this will come as no surprise—that I agree with my hon. Friend’s three policy demands. A £15 an hour minimum wage is more necessary now than ever before. When people first started talking about it, we of course supported it then. Fewer and fewer people can argue against that policy now. Of course, the anti-trade union laws need scrapping. It is wrong to suggest that it is workers’ wages that have been driving inflation. I hope this debate gets people in this place talking about what a lot of economists, who are certainly not on the left, have been talking about—namely, greedflation.

I will move on to some solutions. While workers’ real wages continue to fall, the Financial Times recently noted that across western economies, profit margins reached record highs during 2022 and remain historically high. It is increasingly clear that some corporations are hiking prices to gain those profits, and it is that, not wages, that is a major cause of the inflation crisis. What should be done about that? In the words of Robert Reich, the prominent economist and former US Secretary of Labor under Bill Clinton:

“To control inflation, we must take aim at corporate profits, not working people.”

I have three proposals. First, there should be an excess profits tax. The kind of tax we have seen on the super-profits of oil and gas firms should now be extended to all the other sectors of the economy making excess profits from this crisis at the expense of ordinary people. That would send a clear message to those companies that their profiteering must stop. There has rightly been a huge focus on the eye-watering profits of energy firms, though the Government’s windfall tax has failed to deal with that properly and should be amended to close all the loopholes.

Excess profits are in evidence in other sectors, too. The five big banks have reported soaring profits, as they take advantage of high interest rates. Supermarkets, food manufacturers and agribusinesses have benefited from profit spikes recently. The Treasury should set up a special unit for this excess profits tax that could go after all those companies that are blatantly profiteering, ripping off customers, fuelling inflation and deepening the cost of living crisis.

[Margaret Greenwood]

My hon. Friend is being very generous in giving way. Does he agree that it adds insult to injury that so many of these companies are not paying decent wages to their staff? On the one hand, they are making massive profits, essentially ripping off consumers, and on the other they are not paying the rates they should to the people who actually do the work.

[Richard Burgon]

That is absolutely right. It is scandalous when workers are not fairly paid, the public are being ripped off, and all this profiteering is causing the price crisis that we see. It is not for nothing that people call it greedflation.

On price caps, for all its obvious flaws in not being set low enough, the Government’s energy price guarantee, which was introduced last year, was an important break with the idea that the Government cannot interfere in market pricing to protect people. Surely such price caps should be extended to other sectors. It is very welcome that London Mayor Sadiq Khan has called for powers to allow him to impose private rent controls in London. Other countries do this, so why can we not do so here? On soaring food prices, the French Government have secured a deal with some of the country’s major retailers to place a price cap on staple foods to ease the pressure of inflation on consumers. Why not here?

--- Later in debate ---

[Andrew Griffith]

If the right hon. Member lets me make some progress, I will address precisely his point. Domestic inflation pressures have risen. The UK labour market has remained very tight, reflecting a real cost headwind to employers. There have been real challenges, as we saw in the labour figures today, in getting people off welfare and into work. That has pushed up the cost to firms, including Tesco and others, of producing goods, which has resulted in inflation. The UK is not alone, and I hope Members will reflect on and understand that. We are seeing high inflation in all major global economies. Food inflation in Germany is above 20%.

[Margaret Greenwood]

Will the Minister come back to the question from my right hon. Friend for Hayes and Harlington? Why have profits increased so much?

[Andrew Griffith]

With respect, I have not heard an awful lot of analysis in the debate. I have heard many mentions of Unite the union, and I am familiar with its work, but I did not hear any analysis from Members. Let us talk about food prices for just a moment.