Inflation increased by one-tenth from May to June. The leap from 3% to 3.3% is the largest increase since 1997. The increase prompted Mervyn King, Governor of the Bank of England, to write to Chancellor Alistair Darling explaining that the “rise can be accounted for by large and, until recently, unanticipated increases in the prices of food, fuel, gas and electricity”. No kidding Mr King!
He goes on to explain that in the year to May: “world agricultural prices increased by 60% and UK retail food prices by 8%; oil prices rose by more than 80% to average $123 a barrel and UK fuel prices increased by 20%; wholesale gas prices increases by 160% and UK household electricity and gas bills by around 10%." King predicts that oil prices will continue to rise, that utility companies will increase gas bills well into the future and that the fall in the value of sterling will boost the price of imports, adding further “pressure on consumer prices”, ie. food will continue to get more expensive.
Mervyn King resurrects the old-chestnut of linking public sector wages with inflation. Brown warned in the past that an increase in the wages of civil servants, nurses, teachers and other public sector workers would destabilise interest rates and damage the economy. It is an excuse, a way tvomake war on the working class: to hold down pay of all workers, take on the union, and impose three-year below inflation pay deals on the public sector.
In June 1865, Karl Marx published 'Value, Price and Profit', a series of speeches made to the First International. Marx demolishes the notion that prices are determined by wages: “The dogma that 'wages determine the price of commodities,' expressed in its most abstract terms, comes to this, that 'value is determined by value,' and this tautology means that, in fact, we know nothing at all about value. Accepting this premise, all reasoning about the general laws of political economy turns into mere twaddle." Marx argues that an increase in wages does not cause inflation but a redistribution of value — shifts in production towards those commodities workers now have the money to buy, and from which capitalists can make a profit, but not, in the long-run, necessarily overall increases in the prices of those same goods.
Armed with this response to Brown's claims the labour movement should be fearless in demanding higher wages to meet the rising cost of living.
The significant increase in food and fuel prices is starting to hit home across the working class. Wages are being “devalued” across the board.
A worker on the minimum wage (£5.52 per hour) working 40 hours a week earns about £11,000 per year before tax. The Bank of England predicts that CPI will increase to 3.5% by the end of the year so if the minimum wage is not increased by the same amount, the lowest paid workers will be around £400 worse off. But the fact that the real rate of inflation for the poorest workers is something approaching 10% and rising life is getting especially tough for the lowest paid workers.
It’s time for the labour movement to take come together to fight these de facto wage cuts. We need a workers' inquiry into prices and wages — the unions should gather information about the real rate of inflation and the how each group of workers are being affected. And union leaders should launch a campaign for wages, pensions and benefits to be linked to the cost of living: they should rise in step with rises in the cost of living. This idea is not new, union militants and socialists in the past have demanded the same sort of thing, calling it a “sliding scale of wages”.
Will the unions rise to the challenge? Since 1997 the major trade unions have been locked into “social partnership” with the government — trade unions have subordinated the interests of their members to the interests of the government and big capital. If this relationship is maintained and there is a wide-spread economic crisis, in which the unions fail to defend wages, and jobs the consequences will be horrendous.
A “sliding-scale of wages, benefits and pensions” is the absolute minimum defensive measure for our class. Such protection from rapid increases in the cost of living would mean that families and individuals will continue to be able to feed, house and clothe themselves without suffering massively in other respects.
And of course the labour movement should raise demands for an adjustment in wages to make up for the past years of below inflation pay — as local government workers are strking for this month. We also need an increased minimum wage, better job security and improved work conditions.
Mervyn King’s open letter to the Chancellor was a mere formality in the running of British capitalism. The trade unions should write their own — less formal — letter to the government. It should, for once, be a declaration of intent.