This week the government announced prices are going up by 3.8% a year before the VAT increase, excluding mortgages, or by 2.9% on its preferred measure of the CPI. Most commentators think that will rise again in January. Meanwhile the Council leaders announced there would be no pay increases this year. That means local government workers join the many industrial workers who had no pay rise last year, though it still will leave them better off than the many workers in the private sector who have been on short time, experiencing pay cuts.
In other words, this year, even before the Election, millions are contemplating a year in which their spending power falls by at least 2-3%. It takes special economic incompetence to deliver a fall in living standards on this scale.
Some months ago I forecast a big squeeze on living standards on this site. Labour immediately seized on my remarks and tried to make out I recommended it or wanted it. Let me make it clear again today. Like most MPs I want to see living standards rise. Unlike a majority of MPs, I recommend economic policies which could deliver that happy goal. Then, as now, I am predicting what will happen under Labour’s economic policies. They encouraged the private sector to live well beyond its means in the boom days. They presided over banks that lived well beyond their means. Now they are bloating the public borrowing, making the public sector live well beyond all our means. Even they at last recognise this cannot go on. After their booms come their busts.You cannot solve a crisis of over borrowing in the private sector by borrowing too much in the public sector.
I expect the plan was to try to keep things going until after the election – borrow all they could to see them through. Unfortunately for them the markets are running out of patience, putting interest rates up. The pound has fallen, so their money goes less far, as we learn today with the Foreign Office budget. And now, the Councils have been squeezed a bit so they are telling us the truth. If they are to avoid major redundancies, they have to offer no pay increase. Against a background of surging prices that means lower living standards.
The private sector, which was living well beyond its means, has been reining back hard on the debt. Individuals have been repaying credit card borrowings and cutting the mortgage where they can. New borrowing has been very restricted. It is now the public sector which has gone to extremes with the new borrowing. Yesterday we debated the Deficit and the government’s absurd Fiscal Responsibility Bill. I pointed out that the government has taken out a whopping mortgage for us all, which it has told us about,(gilts) but it has also taken out a second mortgage,(bank nationalisations) lots of hire purchase(leases) and maxed out on various credit cards ((PFI/PPP)without putting all those figures into the official borrowing stats they like to quote. Now we are into the final phase, the visit to the Pawn brokers. This week UK shareholders sold the rest of Cadburys which they still owned to a foreign buyer. There will be more of that to pay the bills we have run up not covered by our earnings. If we carry on importing our lifestyle from China, we have to find a way of paying off the debts we incur as we do so.