Inflation and wages
I was reading the Sunday Telegraph recently where the personal finance section had yet another of those middle class whinging articles about the hell of rising school fees or “why do I have to pay tax if I put my trust fund into cyrpto currencies?”or some such. Then I turned to the travel section to read about the top ten private islands to rent this summer.
I thought that the editors of the two sections should talk to each other, but on reflection they have both got it right. The British middle classes always complain that they are over taxed and discriminated against. when nearly everything is rigged in their favour.
Which brings us to inflation.
It is now at 9%, or more precisely it is around 7% for the wealthy and 11% for the poor. As they spend a higher percentage of their money on food and fuel which are soaring in price.
Meanwhile the Bank of England will be terrified by the latest wage figures which show that pay awards, including bonuses are increasing by 7%, although excluding bonuses the figure is 4%.
This is one reason I always reported on wage rises without bonuses, as they distort the figures. But with unemployment so low and job vacancies so high, the Bank is going to have to increase interest rates to try to squeeze wage inflation out of the system.
That will take considerable luck, because a closer look at the figures shows that wage inflation is concentrated not in catering, or manufacturing but in finance and professional services.
That means the wealthy are not only enjoying a lower inflation rate than the poor they can demand higher wages as well. Higher interest rates aren’t going to stop them demanding and getting high wages and bonuses, while higher interest rates will increase the income from their savings, the poor not having any savings get hit again.
The middle classes are inflation proofing themselves, any squeeze will only hit the poor.
This is why a windfall tax is so important and can’t be used to fund income tax cuts. The poor don’t pay income tax, they don’t earn enough, the money has to be targeted on them or 95% of it will be wasted.
Ideally it should be used to cut fuel bills for the poorest and increase benefits.
But you can already hear the press screaming about the “squeezed middle”, by which they mean their well off readers.
Doubtless this government will eventually introduce that windfall tax and then it will doubtless spend the money on Tory voters in Tory areas.
After all it is the irresponsible, uncaring, inefficient, callous and cynical thing to do.
Economics, trade and Brexit, not necessarily in that order but the dog always comes first.