- Steve Schiffris
Everyone over 50 years old remembers when in the UK Garbage piled up in the streets and graves were left undigged. With Boney M and Gloria Gaynor dominating the airwaves and Superman as the great Christmas movie, there was no one who could save Jim Callaghan’s ailing government from the impending collapse of 1978-1979. Those famous conservative election posters will soon be saying that work is not working They simply summed it up as devastating.
Eighteen months into the coronavirus pandemic, it looks increasingly likely that another very difficult winter, with fears of a resurgence of the virus along with rising inflation and an energy and supply chain crisis.
So what can we expect and how significant are the similarities to the 1970s?
We asked finance and economics specialist Steve Schiffris to explain it. What are the main threats this winter and how do you see them?
The first is the pandemic itself. There are still a large number of issues.
We do not have as many deaths or hospitalizations as in previous waves, but the onset of winter, combined with the more contagious nature of the delta variant and the fact that many people have not yet been vaccinated, It may mean more restrictions.
When Boris Johnson recently announced a “Plan B” with more restrictions, nothing was left out and masks and remote work were mentioned as possibilities. This could mean more economic disruption.
Other economic problems arose during the recovery. As the recovery has been faster than expected around the world, commodity producers are struggling to keep pace, driving up global commodity prices.
The biggest problem is the prices oil and gasUK wholesale gas prices have nearly tripled since early 2021.
Gas remains a major component of the UK’s energy mix, so consumer prices have risen sharply.
Meanwhile, many companies are affected. For example, steel and fertilizer plants have had to shut down temporarily and many energy companies have already gone bankrupt, and many of them could have a problem if they have many customers at fixed prices and very little scope to make a profit at current prices.
3. Shortage of products and workers
Meanwhile, shortages of everything from truck drivers to CO2 are causing problems in retail and hospitality. We see supermarket shelves increasingly empty.
The NSexclude The situation was made worse by the fact that many workers in the food supply chain came from the mainland and no longer had permits to work in the UK.
The government’s idea that British workers will rush to fill the void is misplaced. Even if they manage to train on time, many British workers, laid off or working from home, are not interested in the jobs. Badly paid with long hours and irregular.
To many bars and restaurants hard for them stay openEither because they don’t have enough workers or because of a lack of supplies. Employers in industries such as hospitality and transportation already have to offer higher wages to attract employees.
It produces increases in prices and wages higher inflation data. Whether or not this is temporary depends on people’s expectations. If people start to expect more increases, as they did in the 1970s, their behavior will change. Firms will raise prices and more workers will want higher wages, causing an inflationary spiral.
To keep the economy recovering in recent years, the Bank of England cut interest rates to record low levels and pumped huge amounts of money into the economy in the form of quantitative easing.
If you had to change direction due to rising inflation, this could have a huge impact on asset prices, from stocks to housing, all of which have grown for cheap money.
Also, higher interest rates will have fiscal repercussions, so it’s clear that Chancellor (Finance) Rishi Sunak is already very concerned. It may mean that public debt in the future becomes more expensive, which may further restrict public spending.
How do all these challenges affect public finances in the UK?
We are already seeing signs that the government is taking steps to try to improve public finances ahead of its crucial three-year spending and budget review on October 27.
The National Insurance Tax to fund the NHS (Public Health Service) and social care reform is a clear example, as is the decision not to make the £20 (US$27) universal credit increase permanent.
these decisions Pushing more people into povertyas well as the end of the aid program (Vacation Scheme).
Meanwhile, the decision to temporarily remove the income-related component of the “triple lock” may permanently reduce the generosity of the state pension. (The ‘triple lock’ is the system by which the British government adjusts pensions every year. It does so as a reference which increases these three values: wage reassessment, inflation or 2.5%).
The Chancellor has already announced Corporate tax increases Starting in 2023. In general, almost all sectors are facing tax increases or benefit cuts, although the super-rich seem to have largely escaped unscathed.
Despite these tax increases, Snack appears to be setting very ambitious targets for fiscal stabilization, which will likely require More extra discounts.
Public sector wages are likely to fall, as was the case in the recent spending review. If they are frozen again and inflation remains high, this will translate into a significant reduction in wages in real terms.
However, there are many other, less obvious ways in which you can increase revenue or reduce expenses. We can see an increase in tariffs, for example in gasoline taxes or in highway prices, as part of the green agenda.
The stage is also set for a major struggle between Johnson and Snack over the “compromise” agenda (to reduce regional disparities). So far, the government has spent relatively little on this major agenda, except for the expensive and long-delayed HS2 rail service.
With former Bank of England chief economist Andy Haldane recently appointed permanent secretary to carry out such an agenda, this will be intriguing – his view is that if the government is serious, it will have to commit in the long run more to spending than investing. on HS2.
How does this compare to the seventies?
In the 1970s, a series of economic crises caused major problems for the governments of (Edward) Heath and (Harold) Wilson/Callahan. The OPEC Resolution 1973-1974 (and later in 1979-80) of cutting oil production to raise prices hit the British economy hard, forcing the Labor government to turn to the IMF and cut public spending.
The unions were much stronger than they are today and much closer to the government. The government’s failure to persuade them to ease their wage demands at a time when inflation was already rising – it spent much of the second half of the 1970s in double digits – led to widespread strikes during the 1990s. “winter of discontent” It paved the way for Margaret Thatcher’s victory in 1979.
With global energy prices rising again adding to the pressure at a time when public finances were strained, we could return to the stagnant living standards of the last decade.
Poverty and inequality may increase and we may see strikes. There will be similarities and differences with the ’70s, but it could really play a new version of Winter of Discontent.
*Steve Schiffris Honorary Researcher at the Center for Political Economy Research and Professor of Financial Journalism (2009-2017) at City University of London.
this artThe article was originally published in The Conversation. You can read it in English Here.
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