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24 September 2021

From fuel to inflation to Universal Credit, a cost of living crisis is brewing

Rising prices and slashed benefits might not help Labour win the next election, but it still works to Keir Starmer’s advantage.

By Stephen Bush

As many as 100 (of more than 1,200) BP service stations have had to limit or pause operations as the shortage of HGV drivers continues to make itself felt across parts of the economy. 

The Bank of England’s Monetary Policy Committee has expressed concern about rising levels of inflation, but voted unanimously to keep rates at an ultra-low 0.1 per cent. And the Treasury is looking at whether changes to Universal Credit’s taper rate to allow working people to keep more of their earnings would ease the political and social pain of the looming £20-a-week cut. 

The HGV driver shortage is partly a Brexit story (because the United Kingdom no longer has easy and immediate access to the European Economic Area’s labour market), partly a coronavirus story – and it may also be about a more significant, long-term change in the sector.

But the most important thing about it is that rising wages for HGV drivers may mean higher prices in shops, just as rising energy prices are leading to higher fuel bills, and just as that very sharp cut in Universal Credit (it would be both the largest all-at-once cut in benefits since 1945 and one of the largest in absolute terms) start to be felt. Of course, there’s also a hike in National Insurance coming over the horizon as well. 

Would altering the taper rate fix the problem? The short answer is no: there are benefits to fiddling with the taper rate so that the working poor aren’t paying an exorbitantly high marginal rate of tax. But in terms of money in your pocket, changing it cannot replace that £20 a week. 

And as far as inflation is concerned; as Larry Elliott explains over at the Guardianthe Bank of England is in “wait and see” mode: it thinks that the current inflationary pressures are probably temporary and that therefore it should avoid an interest rate hike, with all the potentially painful consequences. But it’s possible that these pressures aren’t temporary, and that rates will go up, which will also add to the financial squeeze on households. 

Of course, all of this is to Keir Starmer‘s political advantage, but not necessarily in terms of the next election. Don’t forget that the Conservatives were in power for seven more years after the poll tax. If the current squeeze on living standards proves to be temporary, then we might simply be about to live through a difficult moment for the government, but not a particularly significant one, politically speaking. 

Rather, the big advantage for Labour of the current economic picture is simply this: that if next week’s party conference is a success, you can easily see how that feeds into a narrative about Tories in turmoil, prices rising, Labour on the up – exactly the kind of thing that Labour MPs will want to read about over breakfast. But if Labour Party conference is a disaster, then more important and urgent domestic stories about rising prices and pressure on households will act as a firebreak of sorts. Whether Starmer’s package of reforms to the Labour Party rulebook are the right ones or not, events have certainly conspired to give the Labour leader a near-perfect moment to have a messy internal battle. 

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[see also: Energy prices, petrol, rent and food: What’s driving the UK’s cost of living crisis?]

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