Bank of England twists debt spiral

Tuesday’s news that consumer price inflation rose from 2.7 per cent in November to 3 per cent in December, the highest for 15 years, is a major blow for people with credit card and mortgage debt. It spurred the Bank of England into an unexpected interest rate rise to 5.25% last week, with warnings of more on the way.

Public and private sector employees throughout Britain are already preparing to fight to defend their living standards as retail price inflation, on which most pay negotiations are based, jumped to a 15-year high of 4.4 per cent from 3.9 per cent in November. This is the 8th consecutive month that inflation has breached the target set for the Bank of England. House prices and fuel costs have contributed to massive cost-of-living rises for most people, especially young borrowers.

But this will come as no surprise to the nearly six million who felt they are currently struggling with their finances according to a recent survey…….by the very same Bank of England. The latest interest rate rise will sharply increase the 7.7% of households already struggling to repay their mortgage debt and tip many more over the edge to join the 27,644 individual insolvencies in England and Wales in the third quarter of 2006.

According to figures compiled this month by Credit Action, one person is falling victim to insolvency every minute of every working day. This was an increase of 5.7% on the previous quarter and an increase of 55.4% on the same period a year ago. Individual Voluntary Arrangements (IVAs) grew the fastest and increased 118% over the previous year. The total number of people who became insolvent in 2006 is likely to have exceeded 110,000 which is larger than the population of Exeter. The estimate for 2007 had risen to 150,000 before the BoE’s latest move.

Citizens Advice has dealt with 1.4million debt problems in the past year – 11 % up on the previous 12 months and double the figure just eight years ago. This equates to approximately 5,300 people a day seeking advice on debt problems. And within days credit card bills for the record Christmas spending will be arriving on doormats throughout the country.
With the Treasury insisting that public sector pay rises remain on the government’s 2 per cent inflation target, the scene has been set for major battles on wages and salaries. In an interview on Channel 4 last night, Gordon Brown’s front man, Economic Secretary Ed Balls, warned workers not to ask for more than 2% pay rises. Balls received over £50,000 as a senior research fellow in 2005 for the Adam Smith free market think tank, in addition to his usual salary.

Tony Woodley, general secretary of the T&G, one of the largest unions with nearly 800,000 members, called on pay negotiators to seek wage rises significantly above RPI inflation. Derek Simpson, general secretary of Amicus, the largest private sector union, forecast it would be “a busy year for trade union negotiators seeking to protect their members’ living standards”. Dave Prentis, general secretary of Unison, the largest public sector union, warned: “Any notion that public sector staff should accept lower increases and therefore effective pay cuts will be strongly resisted by unions.”

But the record of these trade union leaders in fighting New Labour is abysmal. And with unprecedented conditions emerging throughout the global capitalist economy, the struggle for wages cannot be separated from the question of who owns and controls the economy. For that, a new type of leadership and a new type politics is needed.

Gerry Gold, Economics Editor