Cost of Living


Steve Richards has a big reputation as The Independent's leading commentator on UK politics, but if you ask me this recent article on the 'cost of living' is a load of old guff.

Because it drones on about the poor old middle classes while completely ignoring the fact that for many people in this group, the biggest single household cost - the cost of paying a mortgage - has fallen considerably over the past six years.

And there's no way you can have an honest debate about the cost of living, if you ignore what's plain for all to see - that the cost of living has actually fallen for lots of people in the middle classes, especially those with big mortgages.  

Now Steve Richards might have a big mortgage for all I know, so too might Ed Miliband, but if journalists are going to write about the cost of living, then surely we can expect them to address the elephant in the room - the huge financial windfall that has benefited mortgage payers because of the artificially low interest rates the UK has enjoyed since 2008.  



Miliband should lead the fight to make life affordable for all of us

From the poor to the middle classes, the cost of living has become a big theme

By STEVE RICHARDS - The Independent


The Archbishop of Canterbury says he is shocked by the plight of the UK’s poor. An all- party parliamentary group follows up the Archbishop’s comments by reporting the poor are disproportionately hit by food, housing and fuel costs.

Such findings are awkward for a governing party that plans to cut billions more from the welfare budget, but David Cameron and George Osborne are electorally vulnerable for a different reason.

In the build-up to the next election the poor are not alone in their sense of impotent fragility. Poverty in the UK is a moral issue, but on its own is of limited electoral significance. In the 1980s entire communities were left without support after their industries collapsed. The Church raised several loud alarms and the Conservatives continued to win landslides. The difference between then and now is that the affluent also worry intensely about the cost of living.

Of course there are degrees of struggle, from those who are hungry, to others who worry about making ends meet, and on to voters who are well-off but still taken aback about being ripped off. Together they form a formidable alliance, united only in their impotent despair about the cost of things.

Over the past few days I have had random conversations with friends and colleagues whose lives are far removed from those dependent on food banks. I am struck by how often the price of services or vital goods came up.

A well-off friend told me that she and her husband went to Devon for the weekend, had wanted to take the train and were deterred by the cost of more than £300. They were going to face the insane traffic jams instead. On the same day, I bumped into an old friend who now commutes from the Chilterns. He told me the train fares were preposterous. He had tried to make use of off-peak fares, but the rail company had changed the definition of off-peak, making it impossible.

The following day I met a German writer who had lived in England for many years. He said that when he returned to Berlin recently he was taken aback at the contrast in prices. He gave the small example of posting a book from Berlin to London at a third of the price it costs him when he does the same from England to Germany.

The affluent middle classes feel trapped by markets that are not competitive enough to deliver them services at decent prices. Only a government can liberate them. Ed Miliband’s recent whimsical party conference speech began by making a big argument about government acting on the side of most voters. The speech was poor, but the bigger argument remains fundamental to Labour’s chances of winning the next election in some form or another.

George Osborne has made his election pitch. Even he admits his deep, rushed spending cuts will take the UK back to 2001, an era when hospitals were being compared unfavourably to those in Poland, schools were decaying and transport was so appalling that, to take a small example, theatres were asking audiences to leave more time for journeys as so many were arriving late as a result of chaotic travel conditions. While some money invested after 2001 was wasted, and there is still scope for significant savings, the investment then was urgently necessary. Forget about the 1930s. Voters will not want to go back needlessly to conditions in 2001.

But the Labour leadership fears, probably correctly, that it cannot win a pre-election tax-and-spend debate by playing down the overwhelming need to wipe out the deficit quickly. This leaves it facing a dilemma. Does it enter the next election as it did the last one, arguing that the choice in effect is between the Conservatives’ “bad cuts” and Labour’s “good cuts”? It did not win last time by doing so. Evidently there is a hunger for a battle that is more than a re-run of the dark contest that was fought inconclusively five years ago. The failure of the Conservatives to benefit in the polls from the economic recovery and the rise in popularity of other smaller parties are manifestations of the hunger.

On the “deficit” – the ubiquitous term that Cameron and Osborne have managed skilfully to make the only economic issue worthy of consideration – I note a new informal alliance linking Labour, the Liberal Democrats (Vince Cable speaks for many of his party’s supporters in his genuine alarm at the Conservatives’ plans), the SNP and the Greens. The alliance might prove important after the election. Unfortunately, before then, in the UK’s deranged “tax-and-spend” pre-election debate, the economic focus will be a near meaningless re-run of “good” or “bad” cuts.

But, on the cost of living, Miliband has an additional theme and one that most voters can relate to. He detected early in his leadership a fresh topic relating to failing markets and must make more of it.

If he does so, he will move his party on from the issues that lost it the 2010 election. At its most lofty, the issues relate to regulation and how near-private monopolies or cartels must deliver more effectively for consumers. At its more basic, it highlights the cost-of-living crisis – an overused term that needs more explanation.

The “cost of living” is not a core vote issue for any party. From the poor who visit the food banks to the middle classes seeking somewhere affordable to live or buying a season ticket to travel in the south of England, the cost of living has become a very big theme. Only a government can intervene to sort it out. Miliband spoke of intervening in the energy markets, but has not developed his theme very much since, in a way, that commands attention.

In the build-up to the 1979 election there was a prospect of another dark re-run of the two inconclusive contests in 1974. The gloomy economic context and issues were precisely the same in 1979 as they had been in 1974. But by the time the 1979 election was held, Margaret Thatcher combined radical distinctiveness with expediency. She had moved on from 1974 and won.

Now the bleak context is precisely the same as 2010. Miliband must be more than an echo of Labour’s 2010 campaign. He can be fresh and distinct in showing how government can intervene to liberate voters from the tyranny of preposterous prices. Such a message would be almost the reverse of Thatcher’s anti-government pitch in 1979, but as timely, relevant and nothing to do with ‘good’ versus ‘bad’ cuts.


Cost of Living (16 November 2014)



I came across this interesting piece of information in The Financial Times the other day, in an article written by Jim Pickard, the paper's chief political correspondent.

"Official figures released in October (2014) showed the economy had grown almost 3 per cent in 12 months, making it one of the fastest-growing countries in the G7 group of leading nations. Yet many households are still struggling to cope with a rise in household bills."

"Families with mortgages have benefited from a 40 per cent drop in interest payments between 2008 and 2014, according to a report published yesterday by the Institute for Fiscal Studies."   

"There has been no such relief for people renting their homes, however. And in the same period energy bills have risen by 67 per cent, food prices have gone up 31 per cent and the cost of 'leisure activities' is also up by 27 per cent."

Now a 40% reduction in mortgage interest payments is a huge saving that completely dwarfs the other items because for the vast majority of people the cost of housing is the single biggest household bill.

And this represents a completely free windfall for mortgage payers which they have done nothing to earn, as a result of the artificially low interest rates the UK has experienced since 2008.

Now I've been banging on about this for a long time, I know, but the fact is that you cannot have a serious debate about the cost of living in the UK, if you don't factor in people's housing costs.

Cost of Living (2 October 2014)



Here's an extract from a report by the ONS (Office of National Statistics) that explains how the Consumer Price Index (CPI) is calculated and as the note at the bottom of the Table says mortgage interest payments are not part of the calculation.

As I've said many times before on the blog site, how can you have a rational debate about the 'cost of living crisis' which Ed Miliband bangs on about all the time when you don't include the biggest single cost facing a huge number of home owners and, of course, 'buy-to-let' property developers. 

And as everyone knows the costs of mortgages has fallen significantly over the past six years because of the artificially low interest rates that have been in place in the UK since 2008, while during the same period rents have gone up. 

So talking about the effect of inflation as if everyone has been affected equally is ridiculous, as is the notion that there is a 'cost of living crisis' facing mortgage payers because many of them have enjoyed a huge financial windfall since the recession struck.  

I rest my case.

How inflation data are calculated

The ONS assigns a weighting to each spending category when calculating inflation. Food has an 11pc weighting, while housing (CPI includes rents, but not mortgage interest payments) and utility bills have a weighting of 13pc, according to the CPI gauge. Using RPI weightings, housing accounts for 25pc of the index (Source: ONS)

Cost of Living (4 December 2013)


In recent weeks the Labour Party has shifted the focus of its political attacks on the Coalition Government. 

No longer does Ed Miliband argue that the economy is stalling or flatlining - instead he says that the benefits of the economic recovery that appears to be slowly gathering pace are not being passed on to hard working families - and that the UK is experiencing a cost of living crisis. 

Now clearly this is not true for everyone and while there may be people who struggle to pay their bills and/or put enough food on the table - lots of others are actually much better off because of the artificially low interest rates the country has been experiencing since 2008.

For example, anyone with a large mortgage may be thousands of pounds a year better off - even if they are in a job where the pay has increased very little, if at all, over the past few years.

So it stands to reason that the people facing a big hit to their standard of living has to be someone without a mortgage - someone who pays rent - because their housing costs will have gone up rather than down since the UK economy went from boom to bust. 

All of which means that all this talk of a general cost of living crisis is untrue - and that a much fairer policy would be one which targeted help on citizens paying rent because they have not been fortunate enough to have been handed a big financial windfall - courtesy of nothing more than a sudden and fortuitous collapse in interest rates.

Free Money (8 January 2013)

I heard someone on the radio yesterday complaining that he would be losing out to the tune of £240 per month - as a result of the government's planned changes to child benefit payments. 

Now my heart almost bled as I listened to the chap claim (convincingly) that as a result of the unexpected drop in his income - that he might not be able to keep up his monthly mortgage payments.

Next my glass eye almost shed a tear as the poor man explained the terrible burden of having his company car taxed and treated - as an expensive benefit in kind.

'What kind of world do we live in?', I thought to myself - before quickly coming to my senses and dismissing his ridiculous claims as so much baloney and hot air.

Because as I've said before on the blog site anyone who has been paying a mortgage in recent years has very little to complain about - compared to lots of other fellow citizens at least.

For example workers in low paid jobs, people who rent instead of owning a property (via a mortgage) - or folks on a fixed income, such as pensioners.

The reason being, of course, that most people in these groups have little - if anything - to show for the artifically low interest rates which have greatly benefited UK mortgage payers in recent years - as can be seen from the previous posts below.

So my advice is simple - don't shed any tears for people losing out on child benefits because they earn more than £50,000 or £60,000 a year - because they don't need or deserve a hand-out of free money from the state.

Something For Nothing (17 July 2012)

I listened to a chap on the BBC the other day explaining how the artifically low interest rates - have been saving him £700 a month (net) on his mortgage for the past three years or so.

Now that's a fair old amount of money - in anyone's language - £8,400 in a single year or £25,200 over three years.

Or to put it another way - much more than the average salary in the UK - especially when you consider this is money in the chap's hand - net of tax and national insurance.

I've been banging on about this for a long time of course - as regular readers will know from previous posts on the blog site.

Yet so far at least - I've not heard a single politician remark on how unfair it is that so many people benefit so greatly - for doing absolutely nothing in return.


£20 Billion Windfall (5 January 2012)

I read something the other day - a claim by an organisation know as the Family and Parenting Institute (FPI) - of which I know very little.

Presumably it does what it says on the tin - seeks to speak up for families with children - because the FPI claims that average income of households with children will drop between 2011 and 2016.

By 4.2% would you believe or around £1,250 a year - depending on the exact income of the household in question.

But I say - so what - what does that have to do with the price of mince?

Because unless you factor in other things - such as how much some households have benefited from our artificially low mortgage rates - then the FPI's claim is completely meaningless.

I know some folks - some with others without children - who are saving hundreds of pounds every month necause of low interest rates - worth many thosuands of pounds a year.

So spare me all this special pleading from special interest groups - as ever they are concerned with their own narrow agenda - and have no time for the big picture.

And the big picture means big savings - not for everyone - but for those paying mortage interest when rates dropped like a stone - and the bigger the mortage the bigger some people's windfall.

Here's what I had to say on the issue in 2011 - no doubt the £20 billion figure now needs to be revised - in an upwards direction.

'All in this together' (September 15th 2011)

When people start urging us to take the view that 'we are all in this together' - it's time to stop and think.

Who's 'we'? - will do for a start.

The fact is that not everyone in the UK has been doing badly in these hard economic times - in fact people who are in a secure job and who have been paying a mortgage off - are doing very nicely thank you very much!

Compared to lots of other people anyway.

And just to demonstrate this point here's something I wrote back in March 2011 - arguing for a 'windfall tax' on the £20 billion that mortgage payers have saved in recent years - as a resul tof artificially low interest rates.

Now the people who are not part of this £20 billion windfall are - typically - the less well off and those on fixed incomes who rely on their savings - which produce little or no interest these days - to help pay the bills.

So why don't we hear any of this at the TUC conference - where delegates are good at telling everyone else what to do - but seldom come up with practical ideas for resolving problems.

A special windfall tax would recoup just some of the £20 billion that mortage payers have gained - simply through sheer luck - and it would seem to embrace the 'were all in this together approach'.

Which the present government and the trade unions both espouse - when it suits their own argument of course.

I imagine most union leaders are paying mortgages - because most live in private housing - and most will have benefited hugely out of the artifically low interest rates - we have witnessed in recent times.

Ironically the one union leader who would escape a special 'windfall tax' on mortgages - would be Bob Crow - who has been living in subsidised social housing in London for years.

But a windfall tax on mortgages would be redistribute income between the 'haves' and 'have nots'.

A windfall tax would be progressive because it would tax 'unearned income' - and would be likely to affect the majority of delegates this year's TUC.

In other words - a real life demonstration of solidarity - that we really are 'all in this together'.


Windfall Tax On Mortgages (March 4th 2011)

I read a remarkable statistic the other day - which made me stop and think.

The Financial Services Authority (FSA) has apparently calculated that the UK's artifically low interest rates in recent years - have meant an unexpected windfall of £20 billion to the nation's mortgage payers.

Yet another example of the old saying - 'It's an ill wind that blows nobody any good'.

In this case £20 billion to the good - and the bigger the mortgage - the bigger the killing people have made - without any effort or risk.

While those who can't afford or no longer need a mortgage (e.g. low paid workers and pensioners) - have lost out big time, comparatively speaking.

So I have a suggestion for the government and our policy makers.

Bring in a special windfall tax on mortgages which claws back some of this £20 billion - and use the money to reintroduce the 10p tax rate to help the low paid.

Low paid workers will spend the money - because they don't have a lot to start with - and that will help to boost the economy.

Readers will remember that the 10p tax rate was abolished by the 'man with a moral compass' - Gordon Brown - in one of his worst decisions as Prime Minister.

But here's a chance to right a great wrong - help the lower paid - boost our flagging economy - and with money that has simply fallen into people's laps by sheer luck - nothing else.  

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