Tuesday, 9 April 2013

Poorest hit hardest by Thatcher's legacy

A few weeks ago I cut out an interesting table from the Metro newspaper - showing how the cost of essential items had risen in the past five years.

The table to the left shows quite clearly how the unavoidable cost of several essential items has risen well in advance of inflation.

Nearly four years ago, LEAP published some ground-breaking research on how inflation affected different income groups. The report Why Inflation is a class issue was published in conjunction the then newly formed Trade Union Co-ordinating Group. One of that group's unions - the PCS - has been on strike this week, with the decline in living standards one of the main issues in the dispute. Their general secretary, Mark Serwotka, told the media that his members had seen their incomes fall by 20% in the last five years - due to a combination of below inflation pay rises (including two years of pay freeze) and increased pension contributions (for a smaller pension at a later date).

For the poorest in society - those on low incomes or surviving on social security - increases in the essentials hit hardest. Our 2009 research found that the poorest 10% spend 67% of their income on essentials, compared to the richest 10% who spent only 29% on essential items. This massive differential is the legacy of the Thatcher years when inequality grew, reversing the equalising post-war consensus.

Many of the essentials - formerly publicly owned utilities - were privatised under Thatcher and now operate for the benefit of private shareholders, with only the lightest of regulatory touches. Their profiteering is evident in the table above, as households are hit by the rising costs of essentials like electricity, water, gas and telecommunications. The table above shows the reality for those facing a 1% cap on their benefits.

Likewise the spiralling costs of rents and house prices are rooted in the selling off and failure to replace council housing, the abolition of rent controls and tax breaks for buy-to-let merchants.

Whatever the origins though, the reality is that the poorer you are the harder you are hit by the seemingly unending rise in the cost of essential goods. In 2009 we called for a new measure of inflation - Essential Inflation - it is needed more now than ever, because the poorest are still being clobbered in a way that the headline CPI and RPI figures fail to reflect.

In a society as grossly unequal as ours, no single inflation measure can reflect the true picture for UK households.

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