The Observer’s take on the cost of living crisis | Observer Editorial

Living standards are expected to fall at their fastest pace since records began in the mid-1950s. Last month, the Office for Budget Responsibility predicted that real household incomes would fall 2.2% this year, as energy and food prices rise, but wages do not keep up with rising bills.

The impact will not be felt in the same way. For some, it will barely register. For other families, it will mean tough decisions about what to trim. For still others it will be deep, stretching precarious budgets in which there is already nothing to give, forcing impossible choices between essentials like putting food on the table and keeping the heating on, and sharpening the fear of the unexpected expense that can trigger a spiral of debt from which there is no escape. One estimate suggests low-income households will face a £1,300 drop in income this year.

Last week, ministers’ latest thoughts on how to tackle this living standards crisis made headlines after a cabinet ‘brainstorming’ meeting. Grant Shapps, the Minister for Transport, has proposed moving technical inspections of cars from once a year to once every 24 months, which would save a household with one car £23 a year, at the risk of compromising road safety. Education Secretary Nadhim Zahawi has suggested increasing the maximum number of children an early years worker can be responsible for in order to modestly reduce the cost of childcare. Others around the table have reportedly suggested unilaterally removing tariffs on food imports, which would weaken Britain’s hand in trade talks, and scrapping government pledges to cut carbon emissions, a move that would create significant long-term economic and environmental costs for the UK.

The superficial suggestions reveal the government’s desperation to give voters the impression that it is taking steps to deal with these difficult economic circumstances, but without spending any money. These are not serious politics, but fodder for press releases ahead of local elections.

Britain is in a protracted economic malaise. Wages have been mostly stagnant since the financial crisis, productivity has barely increased since then and is 15% below the US, Germany and France, and external shocks – the pain of self -forced to leave the EU’s single market and customs union, and the war in Ukraine – drove prices up.

There are no shortcuts to increasing the standard of living. Any approach must be three-pronged. First, economic policy must target increasing productivity and ensure that the spoils are shared fairly with employees through increased wages, especially for those in low-paying jobs. One of the reasons working poverty rates have risen is that there are too many jobs that simply do not pay enough to enable people, especially those with children, to provide a minimum standard of living. This can only be achieved by reducing the growth gap between London and the South East and the rest of the country. At a minimum, there should be a radical rebalancing of public investment in transport, infrastructure and skills from the richer parts of the country, which already receive more investment per capita, towards the poorer ones. Brexit has only made this task more difficult; it is expected to significantly reduce exports and increase regional inequalities in the long run.

Second, the real cuts in benefits and tax credits of the past decade for low-income families with children must be reversed. In an economy characterized by a significant amount of low-paid work, the government will always have to redistribute income to low-income parents. Yet successive Tory Chancellors have reduced the value of benefits and tax credits over time, with some families losing the equivalent of thousands of pounds a year from their family budget, while offering tax cuts on the income costs that have disproportionately benefited the wealthiest households. This is another key reason why working poverty rates have risen and why, in a country as wealthy as ours, there are people, including those who work, who rely on food banks to feed their children. The support that Chancellor Rishi Sunak has announced to help families with their energy bills is spread too thinly, including in households where it is not critical, leaving the poorest families horribly exposed.

Finally, the government must implement structural reforms to deal with the high cost of living. Chief among them is housing, the costs of which eat away too much of people’s paychecks all at once. The UK has never built enough housing without significant public sector investment in social housing; Yet social housing construction levels have fallen dramatically since the 1980s, leaving the public housing stock to shrink due to demolitions and the right to buy. This has pushed more and more people who had little hope of ever buying their own home into the overpriced private rental sector. Britain urgently needs a public housing investment program to create more affordable rental accommodation.

These are long-term economic reforms that require sustained investment. Even if they are put in place immediately, they will take time to be fully beneficial to the economy. Yet it is a government that swings from crisis to crisis, with little will or ability to plan for the next decade and a lack of ideas to solve Britain’s very real and structural economic problems. This nonchalant approach will likely lead us to more years of sluggish growth that pushes increasing numbers of families with children into poverty.

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