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Higher Wages Are the Only Solution to the Cost of Living Crisis

The cost of living crisis is causing the biggest fall in living standards in decades – and the only way to turn the tide is to fight for wage increases across the economy.

A graph made by the LSE in 2017, currently recirculating online, shows that the only country that performed worse on wages after 2008 was crisis-stricken Greece. (Christopher Furlong / Getty Images)

The Bank of England expects inflation to hit a whopping 8% over spring 2022 and warns that it could rise to even higher levels later in the year. We haven’t seen price increases like this in decades, but inflation seems like such an abstract concept that it’s often hard to convey what this might mean for people’s living standards.

Rising energy costs act a bit like a tax on the poor. Generally, if the price of one good (say, wheat) is increasing, then consumers can switch to another cheaper good to maintain their living standards.

But there are no substitutes for fuel. While we might start to see a shift to electric vehicles and renewed enthusiasm for retrofitting existing housing and installing solar panels and wind turbines, households cannot just decide to change the composition of their energy consumption overnight—especially not poor ones. And those living in rented accommodation are completely stuck.

Most people have no choice other than to accept the fact that rising fuel costs will erode their disposable incomes, making them poorer. This is bad news for the millions of families who were already on the edge of poverty before the crisis hit.

The New Economics Foundation has shown that, as a result of current levels of inflation, 23.4 million people in the UK—34.2% of the population—will be unable to purchase the goods and services necessary to sustain a basically decent quality of life.

In other words, inflation is making everyone poorer—and this comes in the wake of a decade of wage stagnation that hit the UK after the financial crisis. A graph made by the LSE in 2017, which is currently recirculating online, shows that the only country that performed worse on wages after 2008 was crisis-stricken Greece.

The government want the population to uncritically accept the line that rising prices are the natural and inevitable result of Russia’s devastating assault on Ukraine. But this simply isn’t true. Inflation was ticking up well before the war started to impact commodities markets; and there is plenty that the government could be doing to shield the poor from rising prices.

The natural response to such a drastic increase in poverty would be to increase social security payments. It just so happens that the amount by which NEF expects the average household’s cost of living to increase—£20 per week—exactly mirrors the amount by which Universal Credit payments were reduced at the end of last year. The case for the reinstatement of the UC uplift is clear.

Beyond that, we need to demand the removal of the punitive sanctions regime that has accompanied the rollout of Universal Credit. And social security payments need to be increased across the board, but especially for families and the disabled, both of which have far higher costs of living than single, able-bodied households.

The way we talk about our demands is critical. We should be calling these redistributive payments what they are: social security—a public safety net that exists to keep everyone secure, and upon which most people are likely to draw over the course of their lives. Not ‘benefits’—as though they are a kind of surplus handed out to the privileged few.

But simply handing out more money to those who need it is not going to solve the cost of living crisis. If ideas like Universal Basic Income were a panacea, then we would have seen a permanent reduction in inequality over the course of lockdowns when governments spent billions supporting peoples’ incomes.

Instead, we saw a sharp increase in inequality. The least well-off families spend a greater portion of their incomes on basics like rent and debt repayments, meaning most of the cash they were given went straight out again, unlike the better-off who were able to save large amounts during lockdown.

Handing people more money will provide some short-term relief, but it’s not going to deal with the underlying problems of low-wage, insecure work combined with rising living costs. And it’s definitely not going to tackle the cause of this problem: the extraordinary power of corporate and financial elites over our economy.

Wages have remained low—even in the context of historically high employment—because of the massive imbalance of power between bosses and workers that has marked the UK economy since the 1980s assault on the labour movement. And costs are high because a few massive companies and financial institutions dominate our economy, extracting their profits from the pockets of ordinary households.

As Common Wealth revealed a few weeks ago, UK gas and electricity distribution companies have higher profit margins than any other sector in the economy—a clear sign of monopoly power. Many of the big oil companies have made bumper profits this year, distributing most of the cash to shareholders rather than investing in decarbonisation (as they have repeatedly promised to).

These companies need to be taken into public ownership and democratically run so they can be organised to deliver low-cost, sustainable, and secure energy to UK households, rather than simply to deliver profits for shareholders. The same principles can be extended to food, with basic necessities distributed through a public and democratic national food service.

Barring a significant shift in Tory economic policy, this obviously isn’t going to happen. A transitional and winnable demand would be a reinstatement of the energy price cap and to enshrine in law a ‘right to food’, as Ian Byrne has forcefully argued in his #RightoFood campaign.

With Keir Starmer missing in action, the unions will be some of the most powerful voices in the debate over the cost of living crisis. Those who aren’t yet members of a union should join one now; and existing unionists need to focus their minds on securing wage increases in line with inflation.

Union leaders, meanwhile, need to think carefully about how to build support among young workers in low-wage and precarious work, as well as how they’re going to campaign for increases in social security payments and price controls on necessities like food and energy.

Neither mealy-mouthed pleas to government nor individual campaigns targeting single issues are going to cut it in a world of rolling crisis. The only way working people will find their way through this crisis is if they do so together.