Inflation is worst for the worse off

"Essentials" increased in price by far more than the CPI last year.

Money broker Tullett Prebon has created an index of price inflation in "essentials" in Britain, which it's calling (unsurprisingly) the Tullett Prebon UK Essentials Index. It defines "essential" goods as:

  • Food, alcohol and tobacco
  • Council tax, water charges and home insurance
  • The costs of domestic heating and power, principally gas and electricity
  • Fuel, road tax and vehicle insurance
  • Train, bus and other public transport fares

(Yes, alcohol and tobacco are essentials.) Between them, those components make up 40 per cent of the RPI, with the other sixty per cent being non-essentials.

Defining the difference lets us take a look at how bad inflation is hitting just the act of day-to-day living. Tullett Prebon estimates inflation in essentials was 3.7 per cent over 2012, well above the CPI, which increased by 2.8 per cent. And, since wages have been rising below even CPI, the price of essentials has soared in comparison to income:

Between 2007 and 2012, nominal incomes expanded by 10% whilst the cost of essentials soared by more than 33%, meaning that the average working person would have been 17% worse off if he or she had spent the whole of their income on essentials.

Of course, few people do spend their entire income on essentials. However, with real incomes under pressure, and with the prices of essentials now increasing at annual rates of close to 4%, the proportion of household incomes going into essentials is clearly rising, and is set to continue to do so.

As the chart below makes clear, this is entirely a post-recession phenomenon:

It's been known that inflation is worse for the worse off for quite some time now, but it's largely been a fact bandied around by the far left. The Communist Party of Britain — that's the one which publishes the Morning Star — produced a Working Class Price Index in 2010, which made much the same point. That pegged inflation for the working class (which included a broad mixture of non-essentials as well) at over 10 per cent for some years.

This isn't quite the same point as the one made by those at the intersection of compassionate conservatism and inflation hawkishness, which is that high inflation disproportionately hits the poor. That may or may not be true — I'm inclined to think it does, but not as much as high unemployment and low growth does, and insofar as inflation hawks call for that trade-off they're being disingenuous — but what is true is that whatever the headline rate of inflation is, if you're poor, life is getting more expensive much faster than that indicates.

One final point (I think made originally by Left Outside) is that a closer look at the categories which count as essentials reveals a far greater extent of government control over prices than is normal. Council tax, road tax and almost all public transport fares are set (in aggregate) by the government; a massive proportion of the cost of alcohol, tobacco, fuel and heating and power is similarly driven by taxation.

As a result, standard understanding of inflation goes out the window. There is no intrinsic link between monetary policy and the rate of inflation for "essentials", because the prices aren't set by the market. It's a rare situation where the government could have its cake and eat it; it could implement expansionary monetary policy to boost demand, while at the same time capping, temporarily, rises in those direct regressive taxes and fares to below inflation.

But for that to happen, there first needs to be wider understanding of the problem. That's why the essentials index is an important piece of research, and worth keeping an eye on.

Updated to replace the giant picture of some rice with the chart which was actually supposed to be there.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Caroline Lucas and Jonathan Bartley: "The Greens can win over Ukip voters too"

The party co-leaders condemned Labour's "witch hunt" of Green-supporting members. 

“You only have to cast your eyes along those green benches to think this place doesn't really represent modern Britain,” said Caroline Lucas, the UK’s only Green MP, of the House of Commons. “There are lots of things you could do about it, and one is say: ‘Why not have job share MPs?’”

Politics is full of partnerships and rivalries, but not job shares. When Lucas and Jonathan Bartley were elected co-leaders of the Green party in September, they made history. 

“I don't think any week's been typical so far,” said Bartley, when I met the co-leaders in Westminster’s Portcullis House. During the debate on the Hinkley power plant, he said, Lucas was in her constituency: “I was in Westminster, so I could pop over to do the interviews.”

Other times, it’s Bartley who travels: “I’ve been over to Calais already, and I was up in Morecambe and Lancaster. It means we’re not left without a leader.”

The two Green leaders have had varied careers. Lucas has become a familiar face in Parliament since 2010, whereas Bartley has spent most of his career in political backrooms and wonkish circles (he co-founded the think tank Ekklesia). In the six weeks since being elected, though, they seem to have mastered the knack of backing each other up. After Lucas, who represents Brighton Pavilion, made her point about the green benches, Bartley chimed in. “My son is a wheelchair user. He is now 14," he said. "I just spent a month with him, because he had to have a major operation and he was in the recovery period. The job share allows that opportunity.”

It’s hard enough for Labour’s shadow cabinet to stay on message. So how will the Greens do it? “We basically said that although we've got two leaders, we've got one set of policies,” said Lucas. She smiled. “Whereas Labour kind of has the opposite.”

The ranks of the Greens, like Labour, have swelled since the referendum. Many are the usual suspects - Remainers still distressed about Brexit. But Lucas and Bartley believe they can tap into some of the discontent driving the Ukip vote in northern England.

“In Morecambe, I was chatting to someone who was deciding whether to vote Ukip or Green,” said Bartley. “He was really distrustful of the big political parties, and he wanted to send a clear message.”

Bartley points to an Ashcroft poll showing roughly half of Leave voters believed capitalism was a force for ill (a larger proportion nevertheless was deeply suspicious of the green movement). Nevertheless, the idea of voters moving from a party defined by border control to one that is against open borders “for now” seems counterintuitive. 

“This issue in the local election wasn’t about migration,” Bartley said. “This voter was talking about power and control, and he recognised the Greens could give him that.

“He was remarking it was the first time anyone had knocked on his door.”

According to a 2015 study by the LSE researcher James Dennison, Greens and Kippers stand out almost equally for their mistrust in politicians, and their dissatisfaction with British democracy. 

Lucas believes Ukip voters want to give “the system” a “bloody big kick” and “people who vote Green are sometimes doing that too”. 

She said: “We’re standing up against the system in a very different way from Ukip, but to that extent there is a commonality.”

The Greens say what they believe, she added: “We’re not going to limit our ambitions to the social liberal.”

A more reliable source of support may be the young. A May 2015 YouGov poll found 7 per cent of voters aged 18 to 29 intended to vote Green, compared to just 2 per cent of those aged 60+. 

Bartley is cautious about inflaming a generational divide, but Lucas acknowledges that young people feel “massively let down”.

She said: “They are certainly let down by our housing market, they are let down by universities. 

“The Greens are still against tuition fees - we want a small tax for the biggest businesses to fund education because for us education is a public good, not a private commodity.”

Of course, it’s all very well telling young people what they want to hear, but in the meantime the Tory government is moving towards a hard Brexit and scrapping maintenance grants. Lucas and Bartley are some of the biggest cheerleaders for a progressive alliance, and Lucas co-authored a book with rising Labour star Lisa Nandy on the subject. On the book tour, she was “amazed” by how many people turned up “on wet Friday evenings” to hear about “how we choose a less tribal politics”. 

Nevertheless, the idea is still controversial, not least among many in Nandy's own party. The recent leadership contest saw a spate of members ejected for publicly supporting the Greens, among other parties. 

“It was like a witch hunt,” said Lucas. “Some of those tweets were from a year or two ago. They might have retweeted something that happened to be from me saying ‘come join us in opposing fracking’, which is now a Labour policy. To kick someone out for that is deeply shocking.”

By contrast, the Greens have recently launched a friends scheme for supporters, including those who are already a member of another party. “The idea that one party is going to know it all is nonsense,” said Bartley. “That isn’t reality.”

Lucas and Bartley believe the biggest potential for a progressive alliance is at constituency level, where local people feel empowered, not disenfranchised, by brokering deals. They recall the 1997 election, when voters rallied around the independent candidate Martin Bell to trounce the supposedly safe Tory MP Neil Hamilton. Citing a recent letter co-signed by the Greens, the Scottish National Party and Plaid Cymru condemning Tory rhetoric on immigrants, Bartley points out that smaller parties are already finding ways to magnify their voice. The fact the party backed down on listing foreign workers was, he argued, “a significant win”. 

As for true electoral reform, in 2011, a referendum on changing Britain's rigid first past the post system failed miserably. But the dismal polls for the Labour party, could, Lucas thinks, open up a fresh debate.

“More and more people in the Labour party recognise now that no matter who their leader is, their chance of getting an outright majority at the next election is actually vanishingly small,” she said. “It’s in their interests to support electoral reform. That's the game changer.” 

Julia Rampen is the editor of The Staggers, The New Statesman's online rolling politics blog. She was previously deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines.