All older than 50 years recall the year in which in the United Kingdom rubbish piled up in the streets and graves were left unexcavated. With Boney M and Gloria Gaynor dominating the airwaves and Superman as the great Christmas movie, there was no one who could save Jim Callaghan’s ailing government from the impending collapse in 1978 – 79. Those famous conservative election posters that would soon say that Labor is not working they summed it up with devastating simplicity.
Eighteen months after the covid pandemic, another very difficult winter seems increasingly likely, with fears about a resurgence of the virus combined with rising inflation and an energy and supply chain crisis.
So what can we expect and how significant are the parallels to the decade of 1970?
We ask the specialist in finance and economics Steve Schifferes to explain it to us. What are the main threats this winter and how do you see them?
1. The covid
The first is the pandemic itself. There is still a large volume of cases.
We do not have as many deaths or hospitalizations as in previous waves, but the onset of winter, along with the more infectious nature of the delta variant and the fact that many people are not vaccinated yet, could mean more restrictions .
When Boris Johnson recently announced a “plan B” with more restrictions, nothing was ruled out and masks and remote work were mentioned as possibilities. This potentially means more financial disruption.
2. Inflation
Other economic problems have emerged during the recovery. As the recovery has been faster than expected around the world, commodity producers are struggling to keep up, leading to a surge in global commodity prices.
Although there is a high vaccination rate, the number of cases remains high. The biggest problem is the prices of oil and gas , since wholesale gas prices in the United Kingdom have almost tripled since the beginning of 2021.
The gas continues being one of the main components of the energy mix in the UK, so consumer prices have risen considerably.
Meanwhile, many companies are affected. For example, steel and fertilizer plants have had to shut down temporarily and several energy companies have already gone bankrupt, and several more could be in trouble if they have many clients with fixed rates and very little room to make a profit at current prices.
3. Product and worker shortages
Meanwhile, shortages of everything from truck drivers to carbon dioxide is causing problems in the retail and hospitality. We see the supermarket shelves increasingly empty.
The B rexit has made the whole situation worse because many workers in the food supply chain came from the mainland and no longer have permits to work in the UK.
The government’s idea that British workers will rush to fill the void is misplaced. Even if they could train on time, many British workers, having been laid off or working from home, are not as interested in low-paying jobs with long and irregular hours.
Many pubs and restaurants find it difficult to stay open , either because they cannot find enough workers or due to a shortage of supplies. Employers in industries such as hospitality and transportation already have to offer higher wages to attract staff.
Price and wage increases are producing higher inflation data . Whether or not this is temporary depends on people’s expectations. If people start to expect more increases, as happened in the decade of 1970, it will change its behavior. Businesses will raise prices and more workers will want higher wages, causing an inflationary spiral.
To keep the economy buoyant in recent years, the Bank of England cut rates interest rates to record lows and pumped huge amounts of money into the economy in the form of quantitative easing.
If you have to change direction due to higher inflation, this could have a huge effect on asset prices, from stocks to housing, as they have all grown for cheap money.
Higher interest rates would also have repercussions for public finances, so Foreign Minister (Finance) Rishi Sunak is clearly already very concerned. It would mean that future public debt becomes more expensive, which could further restrict public spending.
How does everyone affect these challenges to UK public finances?
We are already seeing signs that the government is taking steps to try to improve finances public before the critical review of the spending of every three years and the budget of the 27 October.
The national insurance tax to fund the NHS (public health service) and social care reform is an obvious example, and so is the decision not to make the £ universal credit increase permanent. 20 (US $ 27 ).
These decisions will push more people into poverty , as well as the end of the aid program ( furlough scheme ).
Meanwhile, the decision to temporarily remove the income-linked element of the “triple lock” may permanently reduce the generosity of the state pension. (The “triple lock” is the system with which the British government adjusts pensions every year. It does so taking as a reference the one that increases the most of these three values: the revaluation of wages, inflation or 2.5%) .
And the Chancellor has already announced tax increases for companies from 2023. Overall, almost all sectors face tax increases or benefit cuts, although the super-rich appear to have escaped largely unscathed.
Despite these tax increases, Sunak appears to be setting very ambitious targets to stabilize public finances, which are likely to require larger additional cuts .
Public sector pay is likely to drop, as it did in the last spending review. If it is frozen again and if inflation remains high, this will translate into a significant wage cut in real terms.
However, there are many other, even less visible ways in which that you can raise revenue or cut expenses. We could see an increase in tariffs, for example in gasoline taxes or in highway prices, as part of the green agenda.
The stage is also set for a major conflict between Johnson and Sunak over the “leveling” agenda (to reduce regional inequalities). So far, the government has spent relatively little on this flagship agenda, except for the hugely expensive and long-delayed HS2 rail service.
With former Bank of England chief economist Andy Haldane recently appointed permanent secretary to implement said agenda, this is going to get interesting: his opinion is that if the government is serious, it will have to commit in the long term to spend much more than investment in HS2.
How does this compare to the decade of 1970?
In the decade of 1970, a series of economic crises caused major problems for the (Edward) Heath and (Harold ) Wilson / Callaghan. The OPEC decision on 1973 – 74 (and later on on 1979 – 549) of cutting oil production to drive up prices hit the British economy hard, forcing the government Labor Party to turn to the IMF and cut public spending.
The unions were much stronger than today and much closer to the government. The failure of the government to persuade them to moderate their wage demands at a time when inflation was actually on the rise – spent most of the second half of the decade of 1970 in double digits – led to widespread strikes during the “winter of discontent” and paved the way for Margaret Thatcher’s victory in 1978.
With rising world energy prices again adding pressure at a time when public finances are strained, we could well return to the stagnation of living standards of the last decade.
Poverty and inequality may increase and we will probably see strikes. There will be similarities and differences with the decade of 1970, but a new version of the winter of discontent could really be at stake.
Steve Schifferes is an honorary researcher at the Center for Investigation of Political Economy and Professor of Financial Journalism (2009 – 2017) of the City University of London.
This art icle was originally published on The Conversation . You can read it in English
here.
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