Winter is coming. So says the Bank of England. Choose your measure of the economic storm that is headed this way, and deepen a chill that is already biting hard. The Bank says inflation will reach 13%, shrinking the value of wages, making everything more expensive, starting with food and heating, and forcing even more people to decide whether to starve or shiver. We need to brace ourselves for a recession with five consecutive quarters of contraction and a 5% drop in household income in 2024 – the biggest drop since recording began more than half a century ago. Of course, all of this will hit those with the least the hardest. One in five British households will have no savings at all by 2024. Meanwhile, inflation is a whopping 30% higher in the towns and cities of northern England, thank you, say the Center for Cities, to poor insulation of houses and a “car dependency” that forces people to economize more on petrol.
You don’t have to be a strict old-school economic materialist to know that all of this will shape our politics, in both deep and superficial ways. Begin with the latest and current competition to elect Britain’s next Prime Minister, a process of anointing mysteriously delegated to a select priesthood of approximately 100,000 Britons who are anything but representative of the country whose fate they hold.
The race for Conservative leadership should be stirred by Threadneedle Street’s warning, although of course the two contenders hardly needed Thursday’s forecast to know that the UK is already in a serious cost of living crisis. Liz Truss and Rishi Sunak should prepare themselves and their party for the extremely arduous task that one of them will have to face in less than a month. But it’s not like that.
Instead, Truss continues to dish out soothing fantasy tax cuts, even as she throws the cash, with spending promises on everything from defense to doctor’s pensions: Cakeism’s most famous exponent may be in his final days as prime minister, but his doctrine lives in Truss. Sunak likes to pose as Mr. Sensible and insists immediate tax cuts would only “fuel the fire” of inflation, but he’s engaged in his own form of pander politics and tells the Tory selector whatever nonsense they want to hear.
Unfortunately for him, we now have video evidence of just how deep he’s willing to sink into that pursuit — and how right-wing he actually is. In a rather nice garden in Tunbridge Wells, huh boasted to local Tories of his efforts as chancellor to reverse Treasury formulas “that shoved all funding into underserved urban areas” instead of more deserving communities like theirs. That’s right: it’s Tunbridge Wells who needs the help.
It will undoubtedly be a different story nationally. You would think that no ruling party presiding over an economic disaster of this magnitude could hope to be re-elected. Runaway inflation, impending recession, mortgages up, incomes down: every political handbook says these are the conditions in which incumbents are snatched by voters. Keir Starmer should be miles ahead of the conservative alternative, whoever it is. And yet look at the Thursday poll that showed that in a match-up of Starmer against Truss, Truss is two points ahead. Labor is of course at the forefront of other investigations, but given this climate it should be out of sight.
Yet with an economic shock of this order, the impact will be felt far beyond Westminster and electoral politics. Deep in Western popular memory is the knowledge that hyperinflation can lead to – Berlin wheelbarrows full of worthless banknotes as a precursor to Hitler – but what about a sharp rise in inflation that is not at that Weimar level, but a walk is the same? What does that do to our politics?
A quick consequence could be a change in public attitudes towards the war in Ukraine. The most obvious cause of the current rise in inflation is the rise in oil and gas prices, partly caused by the Russian invasion. Being on the side of Kiev and imposing sanctions on Moscow has been paid for by ordinary people in the forecourt and in their heating bills. So far, the British, like most Europeans and Americans, have given admirably solid support to the victims of Putin’s aggression. But if inflation bites harder, that could change, with new pressure on Kiev to make way for its tormentor, if that’s what it takes to push prices back down.
Public discontent can find another outlet. The first signs of the kind of disobedience movement that greeted the poll tax in 1990 are emerging, with a Don’t Pay campaign urging consumers to refuse to pay their utility bills until the companies cut their prices. Energy retailers will stress they’re not the same as energy extractors like BP, which this week announced it had tripled its quarterly profit to £7bn, but few will be in the mood to make that distinction.
An increase in inflation of this order transcends class boundaries. Working people have a hard time, because galloping inflation turns even a wage increase into a decrease. Meanwhile, the middle class sees savings shrinking before their eyes. If they are homeowners, their mortgage bills will rise, possibly out of reach. And when houses are repossessed, fear turns to anger.
Where does that anger go? Guardian readers may hope it focuses on the act of self-harm that has made our current woes so much worse. I asked Albrecht Ritschl, professor of economic history at the LSE, what step the British government could take to alleviate the pain. Suspend Brexit for 20 years, was the answer. He knows that isn’t going to happen. But he explains that the current crisis is not one of demand, but of supply: there is simply not enough material to meet the demand, thanks in part to the post-Covid blockades in the global supply chain. In Britain, that is made worse because we can no longer import European goods as freely or as cheaply as before.
In that context, policymakers are left with a distribution question: how do we distribute the finite, yes, shrinking amount we have. The priority must certainly be those who simply cannot afford to live: the recovery of the £20 increase for universal credit would be a start. But, says Ritschl, “if you want to give something to the poor, you have to do it like Robin Hood — and take it from the rich.” In other words, not the tax cuts Truss promises, but tax hikes for the rich.
A wealth tax, an increase in benefits and a reconsideration of Brexit: it would be some consolation to present them as the consequences of this crisis. But I wouldn’t hold your breath. Instead, memories arise of the last such rise in inflation, in the 1970s. That decade brought with it a wave of political violence and an increase in support for the far-right racist, in the form of the National Front.
Under Boris Johnson, the Conservative party has shifted to a nationalist populism that Truss is unlikely to jettison. That credo already has an ugly tint, but it can get darker – especially when winter comes.