Are we all in it Together?

Inflation: The Greedy Bastards

When I studied inflation, it was defined as too much money chasing too few goods. This was called demand-pull and then there was cost push which was the costs of goods rising because the costs of producing the goods were increasing. The war in Ukraine has impacted both in terms of energy prices and basic foodstuffs such as grains and associated items such as feeds and fertilizers.

Then there was the 10’s of billion rightly pumped into the economy during covid in the form of furlough to stop businesses from failing and stop a catastrophic rise in unemployment. With the money we accumulated because of the lockdown, we subsequently went on a post covid spending spree, causing the classic too much money chasing too few goods. The too few goods were caused by disrupted global supply chains and this was further exacerbated by Putin’s brutal illegal war on Ukraine. All this is what you would expect according to your average economic textbook.

The next element that some commentators failed to pick up on was the element of corporate greed that was adding to inflation, coined now as “greedflation”. Let’s start with the food retailer that pontificates that “Every little helps”. Its profits jumped by a billion from 2018 to 2023 to £2.6 billion with operating margins jumping to 4%, where 3% was the norm. Coke and McDonald’s are making more profit and margin in a cost-of-living crisis. This is also when wages are growing below inflation, now running at almost 9% which hides the fact that food inflation is running at 18%. Baked beans are up 40%, ketchup is up 30%, sugar is up 45%, milk is up 30% and pasta is up over 20%, to name a few staples.

According to Kantar which analyses retail data, says food costs have added almost £900 per annum to annual food bills for an average household. The cost of the food bill for families on lower incomes is crippling, as it now takes up an even higher percentage of their income. So, what is the only tool that is left in Mr Hunt’s toolbox to drive down inflation? None apparently, it is up to the Bank of England to increase interest rates to “dampen demand” which is a euphemism for a recession or to punish the least well-off. The bank by using the bludgeon of interest rate rises is punishing those who have taken on additional debt to live and those who have joined the property-owning democracy, they are seeing mortgage payments going up by up to £2900 p.a. according to the Resolution Foundation. However, the latest from the Bank of England is that mortgage payments will rise by up to £500 per month.  Renters will also suffer as buy to let landlords increase rents to cover repayments.

Companies in the UK and the US are continuing to increase their margins and European Central Bank concluded that profit margins have become the main driver for inflation. The idea put about by Sunak that wage inflation is the economic devil incarnate, is quite frankly BS. So, when the former hedge fund manager and the Bank of England talk about wages price inflation at a time when wages make up less of our production processes and when wages have fallen in real terms. Albert Edwards of Societe Generale said this was “gaslighting workers into believing they are responsible for this”.

Corporate greed is manifesting across the FTSE 100. Even banks are increasing margins by not passing interest rate increases to depositors. Paul Donavan of UBS described greedflation as “transferring money from the consumer to the shareholder. I believe in a shareholder democracy, but it now seems that the ESG-washing corporations (environmental, society and governance) have turned shareholder democracy into a form described by Will Dunn as “shareholder tyranny” which is hurting the poorest in our communities.  During 2022 the FTSE 100 companies paid out dividends of about £100 billion and share buybacks totalling £60 billion. This later financial sleight of hand increased earnings per share (profit divided by fewer shares) which allowed CEOs to boost their remuneration packages which now average £5.0 million per annum.

 This dividend and buyback frenzy is money not spent on investing in the future, in terms of people, technology, R&D, productivity or putting money aside for a rainy day. Camilla Tominey of the Telegraph who comes across as a member of the proletariat, intimated on BBC’s Daily Politics that it was onerous business taxes that are holding back growth. I don’t know what planet she is on but maybe she should reconsider her understanding, that it is a mixture of corporate greed, corporate short-termism, shareholder tyranny and a Tory government that is “Pissing in the economic Wind” without an industrial policy, that is holding back growth. Remember it was the half-wit comedy duo, Truss and Kwarteng that said we couldn’t talk about “Declinism” and then crashed the economy. In this cost-of-living crisis, we are not all in it together, a comment once said by former Tory chancellor George Osbourne. It is Sunak and his hedge fund, asset manager mates that are reaping the rewards of working people’s pain.

 We live in a democracy where capital gains are taxed at a lower rate than wages and salaries and where there is no national insurance on capital gains. Equalising capital gains and income tax could raise £18 billion per annum according to the Institute of Public Policy Research (IPPR) think tank. Arun Advani of Warwick University and LSE Inequalities Institute, calculates that extending National Ins to investment income and removing the cap on higher earners could also raise an additional £28.0 billion a year. OMG, using fiscal policy to bear down on inflation and getting real “fiscal headroom”. This additional tax revenue of £46.0 billion would be equivalent to adding 2.0% to the UK’S GDP. The only pain that this may cause, is that the top one to two per cent of the population that have the highest incomes and accumulated wealth will not be able to buy an additional Land Rover or Porsche and go on their fifth holiday, TRAGIC! This fiscal approach to inflation mitigates the need to increase interest rates which hurts the less well-off in society, however, this goes against Sunak’s Hayekian Tory instincts as a tax-cutting party.  Just to be clear, this is fair taxation, and I am happy to say this as an entrepreneur.

What “greedflation” also does, is that it drives a wedge between affluent consumers and those who frequent food banks, negatively impacting social cohesion. The Trussell Trust one of many food banks serving communities, alone delivered 1 million food parcels last year. The sheer lack of empathy shown by Tory MPs such as Johnny Mercer who waxed that people chose to use foodbanks, implying it was not out of necessity and Lee Anderson suggested that foodbanks were not needed as you could cook a healthy and hearty meal for 30p per day. This attitude is summed in the title of Darren McGarvey’s book, The Social Distance Between Us, a must-read.  The sentiment espoused by these guys is akin to “let them eat cake “a line attributed to Marie Antoinette and look what happened to her. I just hope that the great British electorate has the wit to show Sunak and his Tory Party “Madame Guillotine” in 2024, though someone like me on the political left needs Kier and Rachel to do a bit more on the vision and inspiring narrative (maybe a bit more than a bit more) to get my political juices flowing.

Suneil Sharma

12^th July 2023