UK in recession, OK?

A report by Bank of England governor Mervyn King on the future of the economy seems to have started a run on the pound.

So we can take it that the news isn’t good for the bosses.

We know it isn’t good for us: unemployment up, inflation up, repossessions up…

A crisis that’s made in Britain
Communist Party general secretary Robert Griffiths analyses the economic crisis in Saturday’s Morning Star

The recession starting to hit workers.

AS Britain’s economic growth ground to a halt in the second quarter of 2008, Establishment pundits and politicians became obsessed with official figures and targets.

Can the consumer price index be brought down nearer to the government and Bank of England’s inflation target of 2 per cent?

Will gross domestic growth figures for the next two quarters reveal that economic activity in Britain is actually shrinking and that the economy is therefore technically in recession?

The labour movement and the left should not be sucked into this superficial charade. For millions of people, the recession is already well and truly under way.

We are witnessing the biggest onslaught on working-class living standards since the early days of the Thatcher regime nearly 30 years ago.

Unemployment is rising faster than any time since the late 1970s. The official figure stands just shy of one million, but the real figure is nearly double that. The merciless drive to force the long-term sick and incapacitated off benefits and into low-paid work or destitution will increase the misery, while disguising the full extent of further rises in unemployment.

Pay is increasing by no more than 2.5 per cent a year in the public sector and no more than 3.5 per cent in the private sector. The national minimum wage and state pensions and benefits are lashed to the consumer price index.

Meanwhile, food prices are on average 14 per cent higher than this time last year, the biggest jump since 1980. Basic foodstuffs such as bread, potatoes, chicken, eggs, margarine and butter have all shot up in price by between one-third and a half. Motor fuel is up by a quarter.

Domestic gas prices have gone up by one-third so far this year and electricity by one-quarter. That’s 10 times more than any increase in wages, pensions and benefits.

The real annual rate of inflation for many people in Britain is at least 30 per cent.

Yet the government, the mass media and the Bank of England tell us that, according to the consumer price index, the cost of living is only growing at 4.4 per cent a year. Even the retail price index, which includes housing costs, puts it at a mere 5 per cent.

Why such a huge discrepancy between the fantasy world of government, business and media statisticians, on the one side, and the real world of working class and some middle-class people on the other?

The official indices consider yearly price changes for a “basket” of household expenditure items, each item given different weight according to its prominence in the typical household budget.

According to the latest CPI presumptions, the “typical” household in Britain spends just 10 per cent of its outgoings on food, 3 per cent on gas and electricity and 4 per cent on motor fuel. These are the areas where most of the biggest increases have taken place – but their impact in the “typical” CPI household has, not surprisingly, been negligible.

Mr and Mrs CPI, on the other hand, are keen to buy the newest car and audio visual equipment, go to the opera, eat out frequently and pay young Jemima and Jocelyn’s school fees. So they spend 5 per cent on vehicle purchases, 14 per cent on culture and recreation (excluding pubs and clubs), 2 per cent on education and 11 per cent in restaurants and cafes (but not canteens).

These are areas where many of the smallest price increases have occurred over the past 12 months compared with previously. So, hey presto, the cost of living in Britain has only gone up by 4.4 per cent.

Either government ministers know the extent of this deception, in which case they are fraudsters, or they do not, in which case they are ignorant fools who cannot begin to represent the interests of workers and their families.

The reality is that new Labour primarily represents the interests of big business. This government has orchestrated an Indian summer for the spivs, swindlers and speculators.

Whether in the City, oil, gas, electricity, water or supermarket retailing, the transnational corporations have been permitted, indeed actively encouraged, to make monopoly super-profits.

The kind of creature who flourishes under new Labour is not the hospital worker, the engineer, the carer nor even the small shopkeeper.

Step forward Crispin Odey, senior partner at hedge fund Odey Asset Management.

He has had a successful year trading in food commodity contracts, with no interest in providing food to anyone, and “borrowing” building society shares to sell and then buy back at a profit in a falling market, “shorting” in City jargon.

For performing such socially useful work, he has just helped himself to £28 million in fees and salary.

However, the boardroom chiefs at Britain’s banks do not have the competence to match their greed. They are turning last year’s record profits into this year’s losses, as the sky darkens with chickens coming home to roost.

Not even £100 billion of public money – or £150 billion, if they have their way – will save them all from a “credit crunch” largely of their own making.

Maintaining demand in the economy through private and public-sector borrowing was never going to create Gordon Brown’s “new economic paradigm,” abolishing the fundamental capitalist law of boom and bust.

This policy postponed a periodic crisis of overproduction, when capitalism can no longer sell all or even most of its goods and services at a profit. But it did so in a way which makes the recession all the sharper when it comes, because spending power based on credit collapses more quickly.

At the same time, the banks strive to maintain high interest rates to shore up their income, corporations which had borrowed for expansion seek to maintain high prices to meet their interest payments and a government which refuses to tax the rich and big business has to tax the rest of us and squeeze public-sector pay.

So, economic demand continues to fall and unemployment increases, while interest rates and prices remain relatively high – a repetition of the “stagflation” of the early 1980s.

Although international factors have exacerbated this crisis of the British economy, they did not create it. New Labour’s culpability is far greater, having also allowed manufacturing industry to decline as Britain became overdependent on the financial sector.

Only a left-wing programme can mitigate this crisis in the interests of the working class.

Price controls need to be imposed on household fuel, petrol and basic foodstuffs. A windfall tax on the energy and retail monopoly profits would boost public investment – for example, in council housing and solar panelling – and employment, without adding to the government’s net borrowing deficit, which soared to a record £24 billion last quarter.

Taking gas, electricity and railways out of the hands of profiteering extortionists would be more popular today than it was in the late 1940s.

We need unions to lead a big wages offensive for increases which meet the real rate of inflation. The TUC should demand negotiating rights on the national minimum wage, as the labour movement and the left join campaigning organisations in a fight for higher pensions and benefits and the return of subsistence grants.

Finally, the ideological battle must be waged with greater clarity and vigour.

The “free market” is dominated by monopolies who rig it in order to maximise their profits. It is a market which sucks in huge sums of public money in loans, subsidies and contracts, including the private finance initiative, as a vital source of shareholder profit.

And capitalism remains a system of insecurity, periodic crisis and mass unemployment based on exploitation, oppression and inequality.

Two jumpers or a windfall tax

That’s the choice.

Say, public sector workers are being asked to take a cut in a supposed effort to curb inflation – why aren’t the shareholders of the energy giants doing the same?

Tax the energy giants and cut fuel bills
Corporations make billions while our fuel prices rise over 20 percent, writes Sadie Robinson

Millions of people across Britain are struggling with soaring household energy bills. The government could act to ease the pain by taxing oil and gas firms, or imposing a limit on price rises. Instead it refuses to do anything that would harm profits.

EDF Energy raised its prices again last week – by 22 percent for gas and 17 percent for electricity. On average EDF customers have seen their bills rise by over 33 percent since the start of the year. British Gas customers have seen their gas bills rise by 77 percent and electricity bills by 74 percent since 2003.

These energy companies claim that rising costs are forcing them to raise prices. But in fact they are using rising commodity prices as an excuse to rake in the profits.

This week oil giant BP reported that its profits for the first six months of the year had increased by 23 percent to £6.7 billion.

British Gas, due to announce its profits on Thursday, expects profits of between £100 and £200 million. In 2007 it raised prices to boost its profits by an obscene 500 percent.

Centrica, the parent company of British Gas, expects to announce pre-tax profits of £880 million for the first half of this year.

In sharp contrast to these riches, over 4.5 million people in Britain are already living in “fuel poverty” – spending more than 10 percent of their income on energy. This figure is set to rise by a staggering 50 percent as energy companies keep raising prices.

Ordinary people also face rising debt just to stay on top of the price rises. Around 6.8 million households in Britain are in debt to their energy supplier. Total personal debt is now rising by an average of £1 million every five minutes.

It may be the height of summer, but already people are worrying about how they will survive the coming winter.

Fuel poverty leads to the deaths of between 20,000 and 50,000 people in Britain each winter. Over one in three pensioner households are expected to be in fuel poverty by the end of the year.

Centrica’s managing director Jake Ulrich – who receives a salary of £1,033,000 a year – admits that fuel price rises are “going to hit people hard”. Fortunately he has advice for how people can soften the blow – they should wear “two jumpers instead of one”.

The bosses and the government are completely removed from the reality of life for ordinary people.

The government votes to keep lavish expenses for MPs – but it refuses to implement even the most minor measures that could limit the hardship faced by ordinary people.

The parliamentary business and enterprise committee has investigated the energy market in light of the current crisis.

But its conclusion is that the market is not functioning efficiently enough and that we need more “liberalisation”.

In the face of the massive political crisis that Gordon Brown now faces, some argue that he is simply a victim of a global economic recession that is pushing up the cost of living.

The massive unpopularity of New Labour following the wars in Iraq and Afghanistan and its constant neoliberal attacks on working people is conveniently forgotten. Brown is portrayed as powerless in the face of the global economy.

Response

It is true that energy and food price rises are fuelling anger with the government. But what people are really angry about is the government’s response.

Brown is not powerless. There are many things he could do to ease the burden on working class people. He could implement a windfall tax on the energy companies. He could increase corporation tax. He could impose a limit on the amount that firms can raise energy prices.

But instead of this New Labour has repeatedly cut corporation tax, which currently stands at just 28 percent.

The People Before Profit Charter puts forward demands that would stop ordinary people sinking deeper into poverty.

As well as the demands to tax corporate profits, the charter calls for an end to Brown’s 2 percent pay limit on public sector workers, the abolition of tax on fuel and energy for old people and the poor, and the restoration of the link between state pensions and average earnings.

New Labour is doing none of these things because it defends the interests of the rich and business.

Making sure that workers don’t pay for the crisis means building resistance on the ground. The People Before Profit Charter can help mobilise that resistance.

New Labour declared dead again

I can’t find the words to describe the situation of the dead arising to declare they’ll go on living. This might be helpful:

AFTER the Labour party defeat at Glasgow East, one of the safest Labour seats in the country, the Prime Minister Gordon Brown has stated that he will not be changing the policies of the Labour Party, it will continue to hand billions to the bankers and cut everybody else’s wages.

Quite succinct, dontcha think?

At Lenin’s Tomb, there’s a terse explanation of why Labour lost:

They gave in to the City and the rich on tax evasion, declared a freeze on public spending, advertised for bids on the privatised delivery of welfare, and announced a ‘revolutionary’ shake-up of benefits for the unemployed and incapacitated that will treat both like criminals.

Tony Woodley, leader of the country’s biggest union, Unite, has called for a purge of the Tory entryists that call themselves “New Labour”:

Just three words from Gordon Brown could transform Labour’s prospects even now: “Blairism is dead.” Already I can hear the objections from remaining defenders of the faith – drop the Blairism that won Labour three elections?

Alas, each victory at the polls was won with 2m fewer voters than the one before. We have run out of road there – and the Tories have had a makeover. But there is a more profound reason why we cannot look to 1997 for lessons. The world has changed. The Blairite “all things to all people but more things to rich people” approach could get by when the world economy was booming. Trickledown theory only works when it’s raining money.

Alas, Gordon thinks that rainclouds will gather within two years, so it’s not going to be easy to reason with him – and besides, he’s made amends with the Blairites.

I look forward to seeing Woodley’s name at the bottom of the People Before Profit Charter alongside those of union leaders Jeremy Dear
(National Union of Journalists), Brian Caton (Prison Officers Association), and Joe Marino (Bakers, Food & Allied Workers Union)…

Inflation and recession are now tightening their grip on the economy with every day that passes. Working people face rapidly increasing prices, especially for food and fuel; government led pay restraint; rising unemployment and a disastrous housing crisis.

At the same time the super-rich continue to enjoy huge profits, salaries and bonuses – yet pay less tax than under the Tories.

The desperation felt by many is having equally serious political effects: the resurgence of the Tories and an increase in anti-immigrant and fascist arguments.

We need a coordinated response to these threats. As part of this response please add your name to this Charter and then move support for the Charter at your trade union, party or campaign organisation.

1. Wage increases no lower than the rate of inflation as given by the Retail Price Index. No to the government’s 2 percent pay limit.
2. Increase tax on big companies. Introduce a windfall tax on corporation superprofits, especially those of the oil companies.
3. Repeal the Tory anti-union laws. Support the Trade Union Freedom Bill.
4. Unsold houses and flats should be taken over by local councils to ease the housing crisis. No house repossessions. For an emergency programme of council house building.
5. Stop the privatisation of public services. Free and equal health and education services available to all.
6. End the occupations of Iraq and Afghanistan and use the money to expand public services. Stop the erosion of civil liberties.
7. Abolish tax on fuel and energy for old people and the poor. Re-establish the link between wages and pensions.
8. No to racism. No to the British National Party. No scapegoating of immigrants.
9. Reintroduce grants and abolish tuition fees for students.
10. Increase the minimum wage to £8.00 an hour.

Many workers and trade unionists are now engaged in strikes and protests to defend their pay, jobs and services. We pledge ourselves to support their action and to support the campaigns that are dedicated to protecting working people, including:

• Unite Against Fascism
• Public Services not Private Profit
• Defend Council Housing
• Stop the War Coalition
• Keep Our NHS Public

Please return to: People Before Profit Charter, BM 6035, London WC1N 3XX or email your name and details to peoplebeforeprofitcharter@googlemail.com

Why the rubbish wasn’t collected

Last week’s two-day strike by local government employees was triggered by a below-inflation pay offer.

What does this mean?

Well, because the council bosses are offering an increase which is less than the increase in prices, staff are worried that they will have to do the same job for what ammounts to less pay.

This isn’t just happening in the public sector, where the Brown government is imposing a 2% pay cap. All workers are affected as price rises wipe out pay rises:

The average family is £9 a week worse off than a year ago as steep rises in the cost of living wipe out pay increases.

Despite average earnings rising by £22 a week during the past 12 months, the typical family had 6.5% less disposable income in June after meeting all their essential outgoings than they had a year earlier, according to supermarket group Asda.

Households had a monthly income of around £538 per week after paying tax during the month, 3.2% more than they had coming in during June last year.

But the rise in pay was more than wiped out by a 6.8% jump in the cost of essential goods, such as food, clothes, utility bills, housing and transport, with households spending around £407 on these items a week.

As a result, people had just £131 of disposable income left after meeting all their bills, £9 less than in June 2007.

The research, which was carried out for Asda by the centre for economics and business research, found that the rise in spending on essentials was driven by a 9.5% jump in food prices, while transport costs have soared by 7.3% during the past year.

The typical family now also spends around 7% more on utility bills than they did in June last year.

Andy Bond, Asda chief executive, said: “Our latest report shows clear evidence of the squeeze on real disposable incomes.”

The supermarket was beginning to see signs of people tightening their purse strings towards the end of the month, as they waited for their next pay packet, he added.

Still think public sector workers cause inflation?

From the FT:

Factory gate inflation has hit double-digit figures for the first time in more than 20 years, underlining the strong price pressures in the economy that have stopped the Bank of England cutting interest rates.

Economists said the year-on-year increase of 10 per cent in the prices charged by manufacturers increased the risk of a knock-on effect on consumer price inflation, the measure the Bank uses to decide monetary policy.

The figures preceded Tuesday’s release of consumer price inflation figures, which are usually affected by factory gate inflation because they push up retailers’ costs. Economists polled by Reuters expect the annual rise in consumer prices to accelerate from 3.3 per cent in May to 3.6 per cent in June, far above the Bank’s 2 per cent target.

Factory gate inflation rose from an annual rate of 9.3 per cent in May, the Office for National Statistics said. Costs for fuel and raw materials increased 30.3 per cent in the year to June – also the highest in more than 20 years. This was chiefly because of the near-doubling of crude oil prices.

Vicky Redwood at Capital Economics said: “These data underline why the monetary policy committee is unlikely to cut interest rates in the next couple of months, even though the economy is weakening fast.”

Ross Walker, economist at the Royal Bank of Scotland, said: “Pipeline pressures remain substantial and overall, these data reinforce the likelihood that Bank rate will remain on hold for some time.” But in spite of the rise in inflation for factories’ input and output prices to the highest annual rate since the series began in 1986, the monthly increase in manufacturers’ costs and selling prices was smaller than analysts had expected.

Factory gate prices were up 0.9 per cent on the month, and manufacturers’ input costs climbed 2.3 per cent. But revisions to previous months’ data and other technical factors pushed up the annual increase.

The Bank has made clear it can do little to avert the short-term spike in inflation, but has signalled it will watch for any signs of price pressures driving up wage settlements, which in turn boost inflation in the long term.

Michael Saunders, economist at Citi, said a further jump in the prices manufacturers were charging for food and petrol products could feed quickly into the consumer price index. He added that global cost pressures would be magnified by the weak pound pushing up import prices.

“The widespread and powerful inflation pressures evident in the producer price data are likely to be reflected in a large and extended overshoot of the CPI inflation target in the next two to three years,” he said.

The steady rise in manufacturers’ input prices has brought them 69 per cent higher since January 2004, according to Citi – ramping up the pressure on consumer prices.

In contrast, input prices fell by 2 per cent between January 1986 and January 2004.