It’s now widely predicted that the economy will enter a prolonged period of ‘stagflation’- where rising prices and slow, or even negative economic growth exist simultaneously. But it’s rising prices ( the ‘cost of living crisis’) that currently receive most of the attention. Studies show that a consequence of the current inflation is the widening of the gap between the better off and those on low incomes, as food prices, housing costs and energy bills soar.
Young people are just as likely to be affected – even more so. They generally can’t afford to own property, many live in disparate and often transitionary households making it harder to qualify for temporary financial support – and they certainly don’t enjoy index linked state benefits. Government has also frozen personal tax allowances so that inflation will push more young people into paying more tax. It’s true that the National Insurance threshold has been lowered, but the rate at which NI is paid will still increase.
Many economists and the Governor of the Bank of England still want us to believe there’s a danger of a return to a ‘wage-price’ spiral. Wages may increase in response to labour market tightening but they don’t change to the same extent as other prices. As a result, profits rise faster than returns to labour. In previous periods, such as the 1970s, strong trade unions had some success in clawing back increased profits – the UK the number of trade union members rose to 13 million during the 1970s.
But this is hardly the case now. In Boris Johnson’s ‘red hot’ jobs market real wage increases continue to run well below the rate of inflation with regular pay rises down 3 per cent on the year. Today there are 6.7 million workers in unions, of whom only 2.6 million are in the private sector – much less than the number of those ‘solo self-employed’ for example (see previous post).
While news stories will focus on the planned industrial action by rail workers, one of the few relatively well organised groups of workers, aimed at increasing pay and protecting jobs, many young people work in jobs where union organisation is weak, work is ‘precarious’ often (particularly for the 600,000 plus students in part-time employment) being a temporary means to an end.
The current government is following financial orthodoxy and raising interest rates to curb an inflation that is almost entirely caused by external shocks, the war in Ukraine, the supply-side disruptions of Brexit, or the longer-term implications of relying on fossil fuel generated energy. As consumers start to tighten their belts and cut back on ‘non-essentials’ – or the more affluent find they’ve used up the extra cash they’ve accumulated during Covid, on dining out, or overnight stays in hotels, then with so many young people working in sectors like hospitality and leisure, we can expect youth unemployment to start increasing first. Firms are also likely to reduce the number of apprenticeships still further.
Rising interest rates also have implications for a significant number of graduates on the post-2012 student loan plans that link repayment interest to current prices and now find they are repaying at rates of up to 12%. This could result in higher earning graduates facing rate hikes of £6000 a year, meaning that it takes longer to pay off debts, contradicting one of the main features of the Tory scheme.