An Alternative Strategy to Address the Cost of Living Crisis

We are in the midst of the worst cost of living crisis in a generation. Wages are falling and the economy is stagnating. Yet in many sectors corporate profits are booming and the number of billionaires in the UK is at record levels.

Whilst inflation is at 9.1% and rising, wages are lagging behind and demand is being sucked out of the economy. The real risk to the economy is not a wage-price spiral but a recession that could cost jobs and deepen poverty and inequality in the UK.

This situation requires urgent action from the Government to protect people from the cost-of-living crisis and to control inflation and bring it down. This means:

1. Inflation-proofing incomes (wages, pensions and benefits) to provide immediate and short-term protection against rising prices.

2. Controlling prices is vital to reducing inflationary pressures, which is why we need urgent regulation of and caps on rents, energy prices and fuel and preparation of price controls on basic foodstuffs. Cutting VAT, at an historic high of 20%, would also be a sensible policy.

3. Profits have been soaring in some sectors of the economy. The windfall tax that has been introduced in the energy sector now needs to be extended with an excess profits levy across sectors of the economy where profiteering has also been evident. 

4. Companies are awarding generous remuneration and bonuses to bosses whilst their workers struggle to make ends meet. This warrants the introduction of Labour’s previous policy implementing an ‘Excessive Pay Levy’ on companies with staff on very high pay or with excessively wide pay ratios.

5. To reduce inequality, we have to tax wealth and redistribute power. Taxing income through investment at the same rate as income from work – through equalising capital gains tax rates with income tax – would be a start. But we must go further by taxing second and multiple homes more heavily.

6. It is vitally important that Government respects trade union rights and does not further undermine the mechanisms by which workers are able to bargain collectively for better wages and to maintain living standards.

7. A serious programme of investment is needed to stimulate the economy, create higher-skilled jobs, improve productivity and achieve Government policies like net zero carbon emissions, and levelling-up the country. Building a new generation of affordable zero carbon council housing would also be a wise investment.

At a time of economic crisis, it is time to think big and be radical in restructuring our economy so that never again do people endure a decade or more of falling real wages and rising poverty whilst the threat of climate crisis grows ever more pressing.

1. John McDonnell MP, former shadow Chancellor

2. Ann Pettifor, Prime Economics

3. Dr Johnna Montgomerie

4. Professor Daniela Gabor, UWE, Bristol 

5. Ozlem Onaran, Professor of Economics, University of Greenwich

6. Richard Wilkinson, Professor Emeritus of Social Epidemiology, University of Nottingham

7. Prof Suzanne J Konzelmann, Birkbeck

8. Danny Dorling, Professor of Geography, University of Oxford

9. Grace Blakeley

10. Dr James Meadway, Director, Progressive Economy Forum

11. Dr Guy Standing, SOAS

12. Will Stronge, Director of Research, Autonomy

13. Naomi Klein

Image: https://www.deeconometrist.nl/other/rising-inflation-and-the-taylor-rule/ Licence: Attribution-ShareAlike 3.0 Unported (CC BY-SA 3.0)

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