‘Ticking post-Brexit time bomb’

Don’t be fooled by Tuesday’s (November 15) unexpected drop in inflation, leading economists have said – in post-EU referendum Britain, families from across all income brackets should brace themselves for climbing prices on the high street.

As ever, the poorest will bear the heaviest burden.

The Office for National Statistics (ONS) on Tuesday reported a fall in the annual increase in the cost of living from 1 per cent to 0.9 per cent in October, but this has followed on the heels of a substantial 0.4 percentage point rise in September.

The Bank of England has said that the latest drop will prove temporary – by this time next year, inflation could be as high as 2.7 per cent.

Other factors are expected to contribute to ever-increasing costs. The plunging value of the pound against the dollar and euro is now beginning to register – the price of goods leaving factories shot up by a record 2.1 per cent in October, and the price of raw materials and oil also rose by 4.6 per cent, another monthly record.

Because so much of what we buy is imported – or produced domestically using imported goods – the fall in the value of the pound means prices will inevitably shoot up.

Food prices

The Institute for Fiscal Studies (IFS) notes that businesses can offset the rising cost of goods by switching to (now comparatively cheaper) domestic producers, allowing their profits to drop, or raising their prices for consumers.

The Bank of England projects that in the long run, it’ll be consumers who’ll have to eat up the cost.

What will that mean for families? Who stands to lose out most?

Although so far we’ve only experienced the relatively benign scandals of Marmite- and Toblerone- gate, food is particularly susceptible to big price hikes under a weak pound because Britain imports 40 per cent of its food.

And for those who are already struggling to make ends meet – the poorest fifth of households – it is food price hikes that hit hardest, because it is this income group that spends the greatest share of their income on food.

Wages

What protects consumers from the vagaries of inflation is, above all, growing wages. But pay rises have been few and far between in austerity Britain – a TUC analysis from earlier this year showed that between 2007 and 2015, wages in real terms have plummeted by more than 10 per cent, the biggest drop among OECD countries besides Greece.

Against this dismal backdrop, Unite recently secured a pay deal for more than 20,000 Jaguar Land Rover workers – one that was called “exceptional” precisely because it will protect workers from higher inflation. In the second year of the pay deal, just as inflation is projected to bite hard, the JLR workers will receive a pay rise pegged to inflation plus 0.5 per cent.

But others are not so lucky – public sector workers, for example, have endured 1 per cent pay freeze under the previous Tory government, and last year it was announced this freeze would continue for another four years.

Those who receive working age benefits typically are shielded from inflation, too, as the government has historically uprated benefits as inflation rises.

But the last chancellor George Osborne broke with this policy after imposing a freeze on these benefits as well as tax credits last year.

“[Osborne’s] policy represented a significant takeaway from a large number of working age households,” the IFS explained.  “But it also represented a shifting of risk from the government to benefit recipients. Previously, higher inflation was a risk to the public finances, increasing cash spending on benefits. Now the risk is borne by low-income households: unless policy changes higher inflation will reduce their real incomes.”

Osborne’s freeze will now pummel working families as inflation rises — even former work and pensions secretary Iain Duncan Smith, who largely supported cuts to benefits during his tenure, is calling on the government to end the freeze now.

Investment call

TUC general secretary Frances O’Grady yesterday urged the government to act.

“Working people are still recovering from the longest wage squeeze since Victorian times. With inflation remaining higher, and pay growth slowing, gains in living standards could soon grind to a halt again,” she said.

“Leaving the EU will be a major economic challenge for this country. We need investment now to create more decent, well-paid jobs.

“By investing more in rail, roads, housing and clean energy, the government can boost future jobs and wages,” O’Grady added.

“Working people also need help now to keep their wages ahead of inflation. So the Chancellor should use the Autumn Statement to end the public sector pay cap and announce an increase to the national minimum wage.”

Unite assistant general secretary Steve Turner agreed.

“Let’s be under no illusions – rising inflation, coupled with persistent pay stagnation, is the ticking post-Brexit time bomb that will usher in an out-of-control cost of living crisis, with those who can least afford it suffering the most.”

“But the government can take action to ensure that living standards don’t plummet and the economy isn’t wrecked in the process. Ending the freeze on working-age benefits in next week’s Autumn Statement, along with ending the public sector pay cap and an immediate hike in the minimum wage are some of the key measures that can quell a cost of living crisis.”

“Above all we need an end to austerity and public investment that creates jobs to get the economy going again – it’s the only way we’ll weather the post-Brexit storm.”