Amidst the feeling that the world is descending into barbarism, it is a welcome relief to have some good news. That news came with the announcement that Rishi Sunak had managed to keep a promise. I’m sure all Sunday Socialist readers would have breathed a sigh of relief at the news that, as bad as he is, Rishi has managed to hit at least one target. Inflation is down.
Rachel Reeves, the almost-as-hapless-as-Suella candidate to be the next Chancellor, greeted this news with her usual forensic examination of the figures. Or, rather, she opined “The fall in inflation will come as some relief for families struggling with the cost of living.” But is that true?
Inflation is a measure of how much a basket of goods costs this year compared to the same basket last year. So if, as the figures suggest, inflation is now 4.6%, it means that the price of a range of goods has risen in the past 12 months. And, if that rise was uniform across the board, it would mean that a basket of goods costing £100 last year would now cost £104.60.
If, and its a big if, your wages have risen by a minimum of 4.6% since October last year, then it would be the case that if you were struggling to make ends meet last year, you might be struggling marginally less this year. But, you will still be struggling.
Rachel Reeves appears, at times, to be financially illiterate because she is at pains not to be too critical of fiscal plans she has no intention whatsoever of altering should she get to take up residency in Number 11.
Our basket of goods is not as extensive as the Office for National Statistics, but is probably closer to what the average family might actually buy. The ONS includes in its calculations food, fuel, and housing costs; but it also includes some rather strange items that the average person may never buy, or buy only once, such as e-bikes and security or surveillance cameras.
Our analysis only looks at food prices, but we know that, whilst food is a major part of household budgets, so too are gas and electricity bills. Food is actually a bigger part of your budget the poorer you are, so therefore the rate of food inflation is a far better indicator of whether families might feel some relief at these costs. We know that fuel costs have spiralled out of control in the past two years, and we also know that the profits of large suppliers have increased exponentially.
According to our analysis, food inflation is still at 7.19%. This figure is based on a basket of 13 budget items from Aldi. In November 2022, those items cost £16.27, they now cost £17.44, a rise of £1.17.
For those earning wages, average annual growth was 7.7% in September, which is marginally above the current inflation rate, but in September, which these figures relate to, the food inflation rate was averaging around 16%. This is essentially how workers are continually conned. Wages are not the key driver of inflation, profiteering is.
I am going to repeat that point because if you remember nothing else from this article, hang on to this point:
Wages are not the key driver of inflation, profiteering is.
Household fuel costs are a large part of most people’s outgoings, amounting to 16.6% of the outgoings of the average household in 2022.
In recent times, as has been documented in numerous newspaper articles, the price of gas and electricity has risen way faster than wages or inflation as companies have cashed-in. In February 2022, the ONS reported: “Currently 12-month inflation rates for gas and electricity are at their highest level since early 2009, with gas at 28.1% and electricity at 18.8%.” They have not fallen much since.
As a result of the way in which fuel bills are calculated, it is really difficult for most people to understand what they are paying and why. In different parts of the country, households with similar incomes and fuel needs are paying entirely different amounts for their domestic fuel. Why? It costs no more to provide fuel to a house in Leeds than one in Reading. Wages are not determined by where you live (with the exception of London weighting which is a regional payment), so why are fuel costs? It’s not just fuel costs of course, many goods are cheaper or dearer depending on where you happen to live. This makes no sense at all, but in the case of fuel, it appears to be a deliberate policy to confuse the consumer.
A gas bill, for example, consists of three parts: the amount of gas you actually use, a daily charge simply for having a gas supply, and VAT. And, as complicated as that might be for many people to work out, paying for what you use needs a level of maths that many people simply do not possess. Gas use is measured in cubic metres, but many older meters still measure in cubic feet; so straight away, if you have an older meter, you are likely to find a mismatch between your reading and your bill. If you want to convert cubic feet into cubic metres you have to do the following calculation which is, helpfully, provided by the government: “The conversion factor from cubic feet to cubic metres is 0.0283”. There, that is nice and straightforward.
But, that is not the end of the calculations. These are the further steps detailed by the government:
This figure is then multiplied by the calorific value of the gas which is a measure of the available heat energy. Calorific values vary and the figure quoted on your bill (eg 39.5 megajoules per cubic metre (MJ/m³)) will be an average of the gas supplied to your property (the regulations explain how this is calculated). Gas transporters are required to maintain this figure within 38 MJ/m³ to 41 MJ/m³ as figures outside of this range will cause problems with gas burning appliances.
The figure is then multiplied by 1.02264 as prescribed in the above regulations. This corrects the volume of gas to account for temperature and pressure (as gas expands and contracts).
Finally, the figure is converted to kWh by dividing by 3.6. Again, this factor is prescribed in the above regulations.
The number of kWh is then multiplied by the price per kilowatt hour as detailed on your gas bill. You may also have a standing charge or one price for the first ‘X’ number of units and a lower price for the remaining units.”
Are you still with me? Probably not — and, for most people step 2 would have been the last step. The fact is that because of the way in which this bill is calculated, anybody seeking to keep up with their gas usage must spend an inordinate amount of time doing so. It is not that it is impossible to do so, and, if you are handy with a spreadsheet, it is easy enough to set up once you get a grip on the calculation — but the point is that should you have to? I think of my 94 year-old father-in-law who cannot even see his meter because it is situated too high for him to read. He also does not use the internet so has no way of providing a reading (he remembers the day when the companies came to his house and took regular readings). He also has no way of paying his bill because most payments are done online these days.
He may be a rarity, but he is not alone. In this mass of confusion, the companies are making record profits. Scottish Power, for example, posted profits of £1,147.7 million for the 6 months to 30th June. This was up from £522.4 million for the same six months a year previously. That is a rise of 220% — and, that is for just six months! Shareholder dividends rose from 2022 to 2023 by 122%. The company makes some fine sounding words in its financial statement, including, “We believe that deepening the relationship with our customers is absolutely crucial.” With those profit margins I bet you do! In fact, Scottish Power, like all the energy companies, has used the cost of living crisis to deepen its relationship with its shareholders, offering them dividends way above inflation. It has also looked after its senior staff, paying them above inflation pay rises. All this at a time when many ordinary people are choosing between heating and eating.
The energy companies get away with this trick of misdirection, of which Houdini would have been proud, because most newspapers report record profits as if they are a good thing; but a separate ‘human interest’ article, will give us heartbreaking stories of families struggling to make ends meet. That is how the system is maintained. We must constantly be led to believe that for society to prosper we should not look too closely at those who are doing the prospering; and it is, of course, simply envy to suggest that the resources of society should be shared more equitably.
Rishi Sunak has made no promises to make the UK a more equal society — but then he wouldn’t, would he? He is a Tory millionaire who, having benefited from the free market, mistakenly believes that only the free market can deliver. In fact, he may have a point. The free market delivers very effectively for the already rich. However, it is very bad at delivering for the rest of us. Sadly, Labour’s Rachel Reeves appears to also believe that everything can be solved by appealing to the free market, and so, whatever the outcome of the next general election, it seems that fuel and food poverty is set to remain for a while yet.
Socialist of many years. Former Labour member. Currently presenter of The Socialist Hour.