From October, energy will be three to four times more expensive for the British than in the previous year. Many already do not know how to pay for electricity, gas, fuel and groceries. The situation is serious – financial experts expect a humanitarian catastrophe and civil unrest in the winter.
Actually, Martin Lewis is a balanced man. The UK’s favorite financial expert has been giving millions of low-income earners valuable money and savings tips for decades, from home insurance to supermarket specials. But for a few months now, the British have experienced a different, troubled Martin Lewis. Finally, two weeks ago, he addressed the British government directly with a public video. “If we don’t act now,” he warned there, “we will potentially see a devastating national financial disaster this winter.”
“I can’t help people anymore”
Unusually clear words from a man who is normally far from scaremongering. But Lewis has been at his financial wits’ end for months. “I can’t help people anymore,” he said on a talk show earlier this year. That was in March.
At that time, energy prices for private households had just increased by 45 percent. Now, in October, Britons are facing another hike in their gas and electricity bills – by an estimated 65 percent. From October many British families will have to pay three to four times their previous year’s energy bills, on top of skyrocketing food, gas and rent prices. According to a survey by the consumer organization “Which?” have been struggling to pay their bills since the pandemic. Banks are registering falling savings and rising credit card debt, while pawnshops have recently reported a boom. According to a study by the University of York, the announced price increase in October could plunge almost half of all Britons into poverty.
Poverty like in the 19th century
Already, Lewis is calling on city councils, libraries, universities and public buildings to keep their premises open 24 hours a day during the winter for freezing retirees and families. Grocery banks — now there are more on the island than McDonald’s — double as dispensaries for sleeping bags and duvets, toiletries and clothing. Teachers at schools in deprived schools like Manchester report that almost half of all pupils are now coming to school hungry. In a school there, the in-house food bank is stocked by the teachers themselves. Many of them fear that they will find themselves in such financial difficulties in October that they will no longer be able to afford the donations for their students’ parents in need. Paul Gosling, president of the school principals’ union NAHT and himself headmaster of a school in Devon, speaks of conditions “like in a Charles Dickens novel”.
Bank of England warns of long recession
Alarmed by the inflationary trend, the Bank of England also took action. The most important task of the financial institution is to prevent an inflationary spiral. Last week its director, Andrew Bailey, scowled, predicted a recession for at least the next five quarters and an official inflation rate of 13.5 percent in the autumn. He increased the interest rate, which had been rising steadily for several months, by a historic 0.5 percent to 1.75 percent.
Strong interest rate hike “counterproductive”
The Bank of England is only adding fuel to the fire with this rate hike, says Richard Murphy, professor of accounting at Sheffield University Management School. The bank operates according to a completely outdated economic model, explains the macro-economist. “They assume that the reason for the inflationary development is too much money in the system, triggered by rapidly rising salaries.”
With the extensive destruction of the trade unions in Great Britain, however, the balance of power and ownership has changed fundamentally in the past 40 years. “Salaries are up just 4 to 7 percent, but inflation is already at 9 to 12 percent. So it’s not salaries that are driving inflation.” Rather, it is the rents, which have increased by more than 10 percent in just one year, and the exorbitant profits that not only energy companies, but also banks and large corporations are reaping.
Inflation for the poorest “already at 12 to 13 percent”
“Britain’s economic system is designed to always punish the poorest the hardest,” says Murphy. “They pay the highest energy tariffs because they have to buy their energy upfront.” According to Murphy, they live in outdated and therefore particularly poorly insulated housing stock in regions above all in the north, where they are dependent on their car because of the practically non-existent public transport system. “For these people, inflation is already 12 to 13 percent, while for the more affluent it’s 7 percent.”
And now, thanks to the Bank of England’s interest rate hike, those who bought their overpriced tiny house while racking up debt could potentially have to pay an extra $200 to pay off rising interest rates, Murphy adds. Rental prices are also likely to continue to rise after the interest rate hike. Murphy believes the consequence will be “a systemic failure of the UK economy”. It’s simple: if you owe the bank £1,000 then you have a problem. But if you owe the bank £1m then the bank has that Problem.”
Unconditional belief in the free market
Actually, the British, who are less dependent on Russian gas, should be in a better position than their neighbors in the EU to keep the domestic energy market and thus inflation in check. But measures such as the practical takeover of the energy company EDF in France by Macron’s government border on socialism for the right-wing libertarian British leadership with its unconditional belief in the free market – a swear word in this country.
The UK has also been suffering from a worrying vacuum at 10 Downing Street since the resignation of Boris Johnson. The still incumbent prime minister seems to be working off his “bucket list” – recently he flew in a Typhoon fighter jet and played a soldier for the cameras, he is currently on his belated honeymoon and has since disappeared without a trace. Chancellor of the Exchequer Nadhim Zahawi, who was appointed just three weeks ago, has also said goodbye to his summer vacation.
Tory candidate Liz Truss rejects ‘handouts’
Meanwhile, prime ministerial contenders Rishi Sunak and Liz Truss tour the country on a tour that would exhaust even the Rolling Stones. There, the two pay homage to their idol Margaret Thatcher and outdo each other with libertarian promises intended primarily to please the aging Tory voter base. The economically almost illiterate Truss has just rejected “further alms” as a reaction to the energy cost crisis. She meant the financial aid that Sunak, then Chancellor of the Exchequer, paid during the Covid lockdown to large sections of the population whose existence had been threatened by the inevitable closure of the economy.
Instead of an upswing in the north, there is now hunger and cold
Murphy believes the catastrophe that is sweeping the country is bigger and more dangerous than the pandemic itself. “If we don’t act now, people will die this winter and we will see civil unrest.”
He is not alone with this assessment: under the leadership of ex-Prime Minister Gordon Brown, 60 churches, aid organizations, mayors and city and local councils published a joint appeal to the British government at the weekend. In it, they point out that the crisis will physically and psychologically hamper the development of an entire generation of children and young people and deprive them of many opportunities in life – “especially in the north of the country”. That’s exactly what Johnson’s government had promised in 2019 to raise living standards.
Instead, voters there are now threatened with hunger and cold. This bitter irony should not escape them.