If inflation is a bad thing, why is government policy designed to make us want more of it?

Britain is awash with debt, while government policy encourages inflation. But theoretical inflation sorts a lot of stuff out, while actual inflation will hurt.

So, you want to buy your first house. Let's assume (I know, I know, cloud cuckoo land, but let's go with it) you've scraped together a deposit and have persuaded someone to give you a mortgage. You'll be borrowing, on average, around £117,000. Oh, but that's assuming you're not in London. If you are, you're looking at more like £193,000 instead.

You've probably got some other debt outstanding too; most of us have. Last May, the average consumer borrowing - credit cards, overdrafts, car loans and so on - stood at around £3,207. That's an average, mind, so for a lot of us it's a lot more. Oh, and it had, by June, risen - only by £4, admittedly, but still, every little hurts.

Then there are student loans. In 2011, the Push university guide reckoned these averaged out at around £5,680 per student per year. That was before the new tuition fee regime, of course, and now you're probably looking at somewhere closer to £12,000 to cover fees plus maintenance. The resulting hole in your finances isn't really debt - even the government doesn't expect most of it to be paid back - but is more like an extra tax levied on those foolish enough to be born after 1993 (serves ‘em right). Nonetheless, it does mean yet another big red stain on the finances of those starting out in life.

The point, in case it's not quite sledgehammer enough for you, is that Britain is awash with debt - and the younger you are, the more likely you are to be drowning in it. Coalition ministers have spent a lot of time talking about how immoral it is to run up the nation's credit card and leave our children to pay it off. But they've seemed surprisingly blasé about running up our children's actual credit cards, and have cheerfully gone around loading them up with tuition fees and inflating the housing bubble all over again. Reports from the Office of Budget Responsibility, indeed, have been pretty explicit in their expectation that cuts to the deficit would be matched by a vast increase in personal debt.

All this is obviously horrible for those who'll have to pay those debts. But I wonder if it could have a more profound effect on the nation's attitude to its finances.

We're still living in an economic consensus defined, broadly, by the Thatcher government. For much of the seventies, inflation had run at over 10 per cent, which was commonly thought A Bad Thing. Thatcher's economic policies - monetarism, deindustrialisation, a strong pound - were all intended to get inflation down to the sort of level which didn't scare the bejesus out of investors, and keeping inflation low has been one of the main goals of policy ever since.

Now, though, a large and growing chunk of the population would, in the long term, do quite nicely out of spot of inflation. More than that, they're relying on it: some of the mortgages handed out over the last decade haven't got a hope of being repaid unless nominal wages start to spiral.

Think this through for a moment. If you woke up tomorrow to find that wages and prices had both doubled overnight, then the value of whatever debt you're sitting on has effectively halved. More than that, though, the value of the debt the government is sitting on has halved, too. Oh, and with a cheaper pound, suddenly Britain's exports look more competitive too. Halve the value of money in this country, and a lot of our problems suddenly look soluble. (This is economic model that used to work so well for Italy.)

The real world is not so kind, of course, and real inflation would be a lot more painful than that. Interest rates would rise. Holidays would become more expensive. The five or six British people still sitting on savings would see them whittled away, and anyone about to retire gets shafted.

Worst of all, wages are extremely unlikely to move in lockstep with prices, and those that lag most would likely be the ones paid to those with least bargaining power. That means, in all probability, the poorest. Those same people are also the least likely to benefit from an increase in asset prices (houses again, mostly) that'll accompany any inflation.

Oh, and there's the tiny problem that the deficit means we're still dependent on the faith and credit of the international bond markets. Theoretical inflation sorts a lot of stuff out. Actual inflation will hurt.

Nonetheless, though you'll never catch them saying it out loud, this seems to be the plan the government have lumped for. To get out of the mess we're currently in, there are only really three options. One is a sustained and historic boom (unlikely). Another is default (horrible). The third is to try to inflate the debt away and hope nobody notices. If you're young, middle class and sitting on a massive mortgage, this works in your favour. If you're an investor, a pensioner, or, worst of all, poor, it doesn't.

All the reasons inflation was bad in the Seventies still apply. There are many good reasons for wanting to keep it down. But we can't have everything. The larger the share of the population that is sitting on unsustainable debts, the less frightened of inflation the electorate will become. Any monetarist baby boomers out there might want to think about that, next time they're talking gleefully about how much their house is worth.

A boy with a kite made of banknotes in Germany during the depression of 1922 when escalating inflation rendered much of the currency worthless. Photo: Getty

Jonn Elledge edits the New Statesman's sister site CityMetric, and writes for the NS about subjects including politics, history and Daniel Hannan. You can find him on Twitter or Facebook.

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Who will win in Copeland? The Labour heartland hangs in the balance

The knife-edge by-election could end 82 years of Labour rule on the West Cumbrian coast.

Fine, relentless drizzle shrouds Whitehaven, a harbour town exposed on the outer edge of Copeland, West Cumbria. It is the most populous part of the coastal north-western constituency, which takes in everything from this old fishing port to Sellafield nuclear power station to England’s tallest mountain Scafell Pike. Sprawling and remote, it protrudes from the heart of the Lake District out into the Irish Sea.

Billy, a 72-year-old Whitehaven resident, is out for a morning walk along the marina with two friends, his woolly-hatted head held high against the whipping rain. He worked down the pit at the Haig Colliery for 27 years until it closed, and now works at Sellafield on contract, where he’s been since the age of 42.

“Whatever happens, a change has got to happen,” he says, hands stuffed into the pockets of his thick fleece. “If I do vote, the Bootle lass talks well for the Tories. They’re the favourites. If me mam heard me saying this now, she’d have battered us!” he laughs. “We were a big Labour family. But their vote has gone. Jeremy Corbyn – what is he?”

The Conservatives have their sights on traditional Labour voters like Billy, who have been returning Labour MPs for 82 years, to make the first government gain in a by-election since 1982.

Copeland has become increasingly marginal, held with just 2,564 votes by former frontbencher Jamie Reed, who resigned from Parliament last December to take a job at the nuclear plant. He triggered a by-election now regarded by all sides as too close to call. “I wouldn’t put a penny on it,” is how one local activist sums up the mood.

There are 10,000 people employed at the Sellafield site, and 21,000 jobs are promised for nearby Moorside – a project to build Europe’s largest nuclear power station now thrown into doubt, with Japanese company Toshiba likely to pull out.

Tories believe Jeremy Corbyn’s stance on nuclear power (he limply conceded it could be part of the “energy mix” recently, but his long prevarication betrayed his scepticism) and opposition to Trident, which is hosted in the neighbouring constituency of Barrow-in-Furness, could put off local employees who usually stick to Labour.

But it’s not that simple. The constituency may rely on nuclear for jobs, but I found a notable lack of affection for the industry. While most see the employment benefits, there is less enthusiasm for Sellafield being part of their home’s identity – particularly in Whitehaven, which houses the majority of employees in the constituency. Also, unions representing Sellafield workers have been in a dispute for months with ministers over pension cut plans.

“I worked at Sellafield for 30 years, and I’m against it,” growls Fred, Billy’s friend, a retiree of the same age who also used to work at the colliery. “Can you see nuclear power as safer than coal?” he asks, wild wiry eyebrows raised. “I’m a pit man; there was just nowhere else to work [when the colliery closed]. The pension scheme used to be second-to-none, now they’re trying to cut it, changing the terms.”

Derek Bone, a 51-year-old who has been a storeman at the plant for 15 years, is equally unconvinced. I meet him walking his dog along the seafront. “This county, Cumbria, Copeland, has always been a nuclear area – whether we like it or don’t,” he says, over the impatient barks of his Yorkshire terrier Milo. “But people say it’s only to do with Copeland. It ain’t. It employs a lot of people in the UK, outside the county – then they’re spending the money back where they’re from, not here.”

Such views might be just enough of a buffer against the damage caused by Corbyn’s nuclear reluctance. But the problem for Labour is that neither Fred nor Derek are particularly bothered about the result. While awareness of the by-election is high, many tell me that they won’t be voting this time. “Jeremy Corbyn says he’s against it [nuclear], now he’s not, and he could change his mind – I don’t believe any of them,” says Malcolm Campbell, a 55-year-old lorry driver who is part of the nuclear supply chain.

Also worrying for Labour is the deprivation in Copeland. Everyone I speak to complains about poor infrastructure, shoddy roads, derelict buildings, and lack of investment. This could punish the party that has been in power locally for so long.

The Tory candidate Trudy Harrison, who grew up in the coastal village of Seascale and now lives in Bootle, at the southern end of the constituency, claims local Labour rule has been ineffective. “We’re isolated, we’re remote, we’ve been forgotten and ignored by Labour for far too long,” she says.

I meet her in the town of Millom, at the southern tip of the constituency – the opposite end to Whitehaven. It centres on a small market square dominated by a smart 19th-century town hall with a mint-green domed clock tower. This is good Tory door-knocking territory; Millom has a Conservative-led town council.

While Harrison’s Labour opponents are relying on their legacy vote to turn out, Harrison is hoping that the same people think it’s time for a change, and can be combined with the existing Tory vote in places like Millom. “After 82 years of Labour rule, this is a huge ask,” she admits.

Another challenge for Harrison is the threat to services at Whitehaven’s West Cumberland Hospital. It has been proposed for a downgrade, which would mean those seeking urgent care – including children, stroke sufferers, and those in need of major trauma treatment and maternity care beyond midwifery – would have to travel the 40-mile journey to Carlisle on the notoriously bad A595 road.

Labour is blaming this on Conservative cuts to health spending, and indeed, Theresa May dodged calls to rescue the hospital in her campaign visit last week. “The Lady’s Not For Talking,” was one local paper front page. It also helps that Labour’s candidate, Gillian Troughton, is a St John Ambulance driver, who has driven the dangerous journey on a blue light.

“Seeing the health service having services taken away in the name of centralisation and saving money is just heart-breaking,” she tells me. “People are genuinely frightened . . . If we have a Tory MP, that essentially gives them the green light to say ‘this is OK’.”

But Harrison believes she would be best-placed to reverse the hospital downgrade. “[I] will have the ear of government,” she insists. “I stand the very best chance of making sure we save those essential services.”

Voters are concerned about the hospital, but divided on the idea that a Tory MP would have more power to save it.

“What the Conservatives are doing with the hospitals is disgusting,” a 44-year-old carer from Copeland’s second most-populated town of Egremont tells me. Her partner, Shaun Grant, who works as a labourer, agrees. “You have to travel to Carlisle – it could take one hour 40 minutes; the road is unpredictable.” They will both vote Labour.

Ken, a Conservative voter, counters: “People will lose their lives over it – we need someone in the circle, who can influence the government, to change it. I think the government would reward us for voting Tory.”

Fog engulfs the jagged coastline and rolling hills of Copeland as the sun begins to set on Sunday evening. But for most voters and campaigners here, the dense grey horizon is far clearer than what the result will be after going to the polls on Thursday.

Anoosh Chakelian is senior writer at the New Statesman.