If the politics of 2021 was dominated by Tory corruption, the battles of 2022 are likely to be won or lost over the cost of living. With inflation at 5.1 per cent – driven by the rising cost of food, clothing and transport – pollsters and activists alike report growing voter concerns about a cost-of-living squeeze. And that’s before the dramatic hike in household energy bills expected due to gas price rises, and the collapse of many cut-price energy suppliers.
Two polls released last week projected a huge loss of Tory seats, due to the tsunami of sleaze surrounding the party. Grimmest for Boris Johnson was the Times/Focaldata survey, which put Labour on course for a 26-seat majority. But it was a Survation poll, commissioned by the campaign group 38 Degrees, that pointed to a deeper dissatisfaction.
Survation’s data showed that, for the first time, a majority of 2019 Conservative voters believe Johnson is “dishonest”. Asked whether they thought the Tories were likely to uphold the Nolan Principles of conduct in public life – selflessness, openness, honesty and accountability – older voters were strongly negative. Since people who are older tend to vote Conservative, pollsters were able to identify seats both in the Red Wall and south-west England as likely Tory losses.
I don’t think this sudden and sharp slump in Conservative voters’ confidence in the party – for many a lifelong allegiance – would be happening without the squeeze on household incomes. The Emperor Nero may have “fiddled while Rome burned” – but it was the burning that mattered to the grieving populace, and the fiddling was a gesture of patrician disdain too far.
Likewise, laughing at voters while openly lying to them, and at the taxpayers’ expense, looks bad in all circumstances. But doing so when they are seeing their wages scorched by tax rises, and their spending power constrained by the rising cost of energy, food and petrol, looks like a double dose of cynicism.
Matthew McGregor, the CEO of 38 Degrees, draws the same conclusion: “In the year ahead,” he tells me, “when the cost of living crisis – which already looms large in polling and in focus groups – hits home even more, the blame will be laid at Boris Johnson’s door. Energy prices are getting the headlines but the cost of public transport, childcare, even the cost of a visit to the dentist, are all hitting people in the pocket and making life harder, and less enjoyable.”
McGregor’s polling shows that it’s the C1/C2 social groups – the office and skilled manual workers who together represent 48 per cent of the workforce – that feel particularly hard hit. They’re not exactly poor. But they’re suddenly having to make hard choices over how they spend their wages, with luxury brands and status items getting the chop.
And the cost-of-living squeeze is set to get dramatically worse in the next quarter. The energy regulator Ofgem has already warned of a 40 per cent rise, when the next government-mandated price cap is set in five weeks’ time. Now, the price comparison website The Energy Shop is predicting average bills will rise by 50 per cent and hit £2,000 a year – almost double what families were paying a year ago.
According to a Resolution Foundation report, published 29 December, real wages have stagnated throughout 2021 and will fall for most of next year. Faced with the double whammy of sleaze and cost-of-living concerns, ministers are already scrambling around for solutions – reportedly considering the temporary VAT cut advocated by Labour, or price subsidies targeted at the poorest households. But solutions cost money, and Chancellor Rishi Sunak has already bridled at the growing cost of the business subsidies required by Covid, promising a return to austerity as soon as possible.
Labour has advocated for the temporary suspension of VAT (5 per cent) on energy bills since the October Budget – and has set the political agenda in the process. But a 5 per cent cut, set against a potential 100 per cent rise is not enough to seriously offset the price crunch that’s about to hit.
There is an obvious solution – and it’s been done before by a Tory government in 1982: a windfall tax on oil and gas company profits. The global price of gas is being driven upwards by shortages and manipulation elsewhere – but it costs Shell and BP roughly the same to get the fuel out of the ground as it did last year. As a result they are swimming in excess profits. BP boss Bernard Looney described the company as “literally a cash machine” for investors.
The moral case for hitting UK-based oil and gas companies with a windfall tax could not be clearer. They have benefited from a preferential tax regime throughout their existence. Shell and BP paid no corporation tax or production levies on North Sea oil operations between 2018 and 2020, and claimed tax reliefs of nearly £400m. In fact, since the Paris Climate Agreement the government has provided £13.6bn in subsidies to the UK oil and gas industry.
The rate of corporation tax on oil and gas companies could be hiked overnight. As for ways to distribute the revenue, the options are a universal rebate – as pledged by both the Irish and Norwegian governments for 2022, or a mixture of this and targeted support for the poorest families.
If, for example, every household were given an £100 rebate, funded by a windfall tax, it would cost the oil and gas giants £2.8bn. If in addition, the government made the Warm Homes Discount scheme mandatory for all suppliers, and simplified the criteria, it could deliver targeted help to every household receiving benefits.
The politics of this are pretty simple. The government is holding panic meetings with suppliers to try to stem the carnage and soften the blow of the price cap hike. Labour should state clearly that oil and gas have been undertaxed for decades; that any solution should be universal – because everyone is hit by energy inflation – and that all should have a stake in a society-wide mitigation measure. In addition to a universal rebate, targeted help should be provided to the poorest families via the existing schemes.
Ireland is offering €100 off the first bill for every household in 2022; Norway is set to pay $560m to households between now and March by subsidising half of their bills above a certain minimum. The quicker Labour devises a clear policy, the sooner it can put Kwasi Kwarteng under pressure to deliver something of clear value to households, and not some penny-pinching, Treasury-designed scheme.
Beyond this, the wider problem of inflation and falling real wages demands systemic answers. The UK is a low-wage economy, whose workers find it hard to bargain, faced with offshore and opaque capital ownership structures. Our growth is not being driven by innovation and productivity, but by the ready availability of central bank money, on which we have become reliant.
I opposed the recent rise in interest rates and will continue to oppose rate rises as a solution to externally generated inflation. Instead we need a dramatic redesign of quantitative easing – so that the Bank of England is buying financial instruments that can generate growth, consumption and wage increases – rather than simply asset-price inflation. For example it could buy and bury the entire student debt portfolio, releasing millions of young workers from monthly repayments.
Ultimately, however, we need something simple and fundamental: a fall in the profit share of GDP and a rise in the wage share. Labour’s frontbench talks a good game on the so-called “foundational economy” – the replacement of crap jobs with good jobs on decent pay. The easiest way to make this happen is to pledge labour market reforms that eradicate bogus self-employment, bring millions of workers onto the books of companies and give them the legal right to collective bargaining and strike action.
If the cost of living is the battleground, you have to make the solutions clear, structural and strategic. They have to tell a story about a different kind of economy – and the chance to do that is there for Labour’s taking.