Socialist Worker

Cost of living rises way above inflation

by Simon Basketter
Issue No. 2034

Inflation for pensioners

Inflation for pensioners

Do you notice your wages don’t stretch as far as they once did? Are you left short of cash at the end of each month?

For all the talk of the rising inflation rate, the truth about soaring prices is being systematically distorted.

Officially Britain’s rate of inflation rose to 3 percent this week. Yet the reality is the rate of inflation for ordinary people is rising twice as fast as the official figures show.

Increases in fuel prices, housing costs, transport charges and council tax mean the cost of the items workers spend their money on is going up by over 6 percent a year.

That’s not a figure plucked from the air. Using Office of National Statistics calculations, a family in the south west of England with a mortgage and two children faces an inflation rate of 6.5 percent. If they live in London it’s 7.3 percent.

And the recent interest rate rise means that the average mortgage payment is at a level similar to that which caused so many repossessions in the early 1990s.

An average family is now paying £9,925 more a year in tax, gas bills, mortgage payments and rail fares than in 1997 when New Labour took office.

You don’t get a whiff of this in the mainstream media, and you don’t get it from trade union leaders who still claim that a pay rise of 3 percent is “keeping up with inflation”.

When chancellor Gordon Brown says public sector workers should accept rises of 2 percent maximum, he’s really calling for a massive cut in living standards.

The rising cost of living for workers is shown at its starkest in London. It is the most expensive city in the world for public transport. London cash bus fares have just gone up 33 percent. And average house prices in London rose to £291,006 in November.

In the rest of the country house prices went up by 8.9 percent last year. The average house now costs £199,467.


The high levels of personal debt – now £1.3 trillion – are the result of growing pressure on household finances.

Pensioners are facing even tougher times. One study by Capital Economics shows they face a real inflation rate of 9.1 percent.

Increases in fuel bills means extra costs eat into their disposable income.

The official inflation rate is calculated on a basket of 650 goods. Some of the goods used are a bit removed from most people’s reality – last year chocolate biscuits were taken out of the basket and champagne was added. But the real problem is the weight given to different items.

Utility bills are given similar importance to luxury goods, meaning falling prices for MP3 players can effectively cancel out rising gas bills in the figures.

Debates about inflation figures can seem to be academic and technical. In truth they are highly political. They are about how much our side gets and how much the bosses keep. And our side needs to start fighting a lot harder.

Workers must fight for their share

Globally the share of wealth going to workers is getting smaller every year. And British workers have lost more than most.

A recent study prepared for the IMF says, “The past two decades has seen a decline in labour’s share of national income in several industrial countries.

“The results suggest that the decline in labour’s share during the past few decades in the OECD member countries may have been largely an equilibrium, rather than a cyclical phenomenon, as the distribution of national income between labour and capital adjusted to capital-augmenting technological progress and a more globalised world economy.”

Translated, that means that workers are getting less of a share of what’s produced.

This isn’t some process that goes up and down but a permanent shift, a theft from us all that will continue unless we resist. It confirms that workers are paying for Tony Blair and Gordon Brown’s neoliberalism.

At the very least the unions need to fight for pay rises of over 5 percent just to keep up with what the bosses are stealing from us. And we are expected to work harder for less money.

British workers did £23 billion worth of unpaid overtime last year. Two out of three office workers eat lunch at their desk and nine out of ten never have a full lunch hour.

The paper prepared for the IMF can be downloaded from the fund’s website.

National income share

National income share

Click here to subscribe to our daily morning email newsletter 'Breakfast in red'

Article information

Sat 20 Jan 2007, 00:00 GMT
Issue No. 2034
Share this article

Mobile users! Don't forget to add Socialist Worker to your home screen.