We cannot afford to waste time – the cost of inflation is too great
We are facing a national emergency. The second in three years. This time it is an economic crisis but one with the potential to seriously damage global and national economies. It will not be short lived and it will be incredibly tough for some families.
Insight shows us how challenging the picture is for domestic consumers. Asda’s income tracker (I am chairman of Asda), conducted by CEBR, shows that discretionary disposable income has dropped £40 per week year-on-year. The biggest drop since 2008.
Serious inflation is a malaise we have not seen in this country in most working peoples’ lifetimes. Those of us who have seen it before will remember that it is long-lasting and pernicious.
For those of us in business this crisis comes as no surprise. The tell-tale signs have been around since early last year. It has, of course, been accelerated by the war in Ukraine.
This crisis will affect many more than just the lowly paid or those on benefits
However, there is a significant difference between the inflation this country experienced in the 70s, which was historically of a domestic nature, and the inflation we see today. This time it is global. Therefore any attempt to mitigate and control it cannot just be domestic alone and will be more difficult to effect.
United Kingdom business, and particularly retail, is highly efficient, fast-moving and reactive. All retailers have already made adjustments to their ranging, pricing and promotions in order to help customers, but there is a limit to what can be done in isolation.
Last month the Chancellor announced a range of measures to ease the burden on those most affected but I fear this will only scratch the surface of the problem. If, as I believe, inflation stays with us for some time, bolder and more imaginative measures will be needed.
Those announced so far will barely cover the cost of the increase in utilities, never mind other cost increases coming through on a daily basis. It is of course right and proper that help is targeted at those most needy, but this crisis will affect many more than just the lowly paid or those on benefits.
During the Covid crisis the government borrowed more than £480bn – half of which was poorly targeted or wasted. Although the UK balance sheet is seriously stretched, I do believe that other measures, including borrowing, should be considered in short order.
There is not space in these comments to discuss the pros and cons of the windfall tax – although I am broadly suspicious of the motive for its introduction and long-term benefits.
Business is quick to react to unforeseen events – the government reacted quickly to Covid. Why are we hesitating with this new crisis?
I acknowledge that the government has a tricky task balancing the need to maintain growth, employment, and contain inflation. As previously highlighted, this is made doubly difficult because of the global nature of the crisis. Surely then, this should encourage the government to consult more widely, not only with businesses but on a cross-party basis to ensure we grip the problem quickly, effectively, and fairly.
The last time inflation took hold it lasted for nearly a decade. There is no time to be wasted.
Lord Rose of Monewden is a Conservative peer.
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