My Lords, UK inflation has been affected by global factors, including Russia’s invasion of Ukraine which has affected energy and food prices. The UK is not alone in facing these challenges: advanced economies across the world are feeling the impact of inflation. That is why halving inflation is one of the Prime Minister’s top five priorities, as a staging post to returning inflation to the 2% target. Evidence that corporate profits play a role is inconclusive.
My Lords, the Minister is in total denial of reality here. The pandemic of profiteering is driving inflation. The IMF and the ECB have said so, but the Government are in denial. Look at the accounts of banks, oil and gas companies, supermarkets, food, internet and mobile phone companies, and others, and you will see that their profits have doubled within the last couple of years. The Government have a whole array of policy options, including price controls, windfall taxes, prosecution of profiteers, and breaking up oligopolies to encourage more competition to curb profiteering, but they choose to do absolutely nothing. Can the Minister explain what assessment the Government have made of the corrosive impact of profiteering on people’s standard of living and what they will do about it?
My Lords, I note that the noble Lord referred to the recent IMF analysis, which looked at the euro area. The Governor of the Bank of England recently said that it does not see a higher trend in non-North Sea corporate profits. Of course, we have the energy price levy in place with respect to North Sea corporate profits, but we keep it under close scrutiny. I am sure the noble Lord will be pleased to know that, yesterday, the Chancellor of the Exchequer met with the main regulators and agreed a new action plan to ensure that consumers are being treated fairly and to help those struggling to meet their bills.
My Lords, does my noble friend accept that, contrary to what the noble Lord suggests, inflation is entirely a monetary phenomenon; that since 1997 the Bank of England has been responsible for the control of inflation; and that the cause of our present difficulties is the reckless creation of money in recent years?
My noble friend is right that, when we think about tackling inflation, the number one area is remaining steadfast in our support of the independent Bank of England as it takes action to return inflation to the target of 2% through monetary policy. However, government does have a role to play. We must make difficult but responsible decisions on tax and spending so that we are not adding fuel to the fire. We also need to take longer-term action to bring down prices, whether that is investing in our future energy security or looking at the tightness of our labour market and taking action to get people back to work—for example, through our ground-breaking reforms to childcare.
My Lords, I hear what the Minister says, but a new word has appeared: “greedflation”. Everyone knows that the idea of a business is to make a profit; no one is saying that they should not make a profit. However, there is now greedflation, which is the padding of profits. We see people struggling while companies are making surplus profits above what is reasonable. Have the Government any real answer to this?
My Lords, the answer is twofold. We are looking closely at the data and will continue to do so, but we do not see the pattern that the noble Lord refers to so far. We will also work with the regulators in the main areas—the FCA when it comes to the banking sector and the passing on of higher interest rates to savers, as well as mortgage holders—and look at the work of the supermarkets to ensure that their profits are fair and reasonable and driven by fair competition in the sector. We will keep all of that under review. We have agreed a series of steps with the regulators to make sure that action is taken if competition is not working as it should.
My Lords, there has been a large increase in the price of food for our consumers. What measures have His Majesty’s Government taken to ensure that the primary producers—in many cases our farmers, whose input costs have risen dramatically—are receiving an appropriate uplift in the prices they receive from wholesalers and retailers?
I believe that Defra has regular discussions with both food retailers and food producers to ensure that the market is functioning fairly for all those involved. At the moment, the higher food prices we are seeing in supermarkets appear to be down to the passing on of higher costs, but of course we keep that closely under review.
My Lords, does my noble friend the Minister not agree that the problem has been caused by the money supply increase, quantitative easing over the years and, in particular, most recently, the coronavirus nonsense, when lockdowns cost this country billions and contributed to the parlous state of the economy and inflation? Noble Lords on the other side are complaining now, yet in the past they wanted even further restrictions which would have cost this country money and, indeed, contributed to inflation.
My noble friend is right that we are still feeling the effects of the Covid pandemic in a number of ways. This Government put in place unprecedented economic support to get people and families through that pandemic, and we have had to take difficult decisions about the public finances since. Another way in which we are still feeling the effects of the pandemic is in the unwinding of the measures put in place to control it. We have seen heightened pressure on global supply chains; that has been part of the driver of the increased inflation and higher prices that we are seeing.
Does the Minister agree that many of those factors affect the rest of the world, including other countries in Europe, yet this country is performing poorly in relative terms compared with them? Our inflation is higher and our productivity is lower—why is that so? Is this not to do with some of the points pressed about Brexit by people on the Tory Back Benches opposite and the 4% loss to our economy as a result of us coming out of Europe?
My Lords, I have to disagree with the noble Lord. The higher rates of inflation that we see are seen in countries across the world. I believe there are nine EU countries with higher headline rates of inflation than the UK, and more than half of EU countries have higher rates of core inflation than the UK. The noble Lord talked about the importance of productivity to our future economic well-being; I could not agree more. We need greater investment to drive greater productivity, and we would not see that with the kind of policies advocated by the noble Lord, Lord Sikka, such as windfall taxes and other measures that would deter investment from our country.
My Lords, to follow up on the Minister’s answer to my noble friend, as she said the IMF has described so-called greedflation as a Europe-wide phenomenon, yet despite the Prime Minister promising to halve inflation, Britain continues to be an outlier. The UK has the highest inflation in the G7. Last month, core inflation increased to 7.1% in the UK—a 31-year high—while in other advanced economies, including in the eurozone and the US, it has started to fall. The Government often argue, as the Minister has this morning, that responsibility for the UK’s persistently high inflation lies in global factors, but do these figures not tell us that it actually lies much closer to home?
I am afraid I am going to have to disagree with the noble Lord. I will not cite again the figures I gave to the House a moment ago. We have heard about the IMF in this Question today. Despite the challenges we face after the pandemic and Russia’s invasion of Ukraine, the IMF has noted that the UK has taken decisive and responsible steps to tackle inflation, and all major forecasters expect inflation to fall this year. We cannot be complacent about that, and that is why this Government’s number one priority is to bring down inflation.
My Lords, the fact is that the majority of people in Britain are suffering from the cost of living crisis and this Government are doing nothing to make it better. The noble Lord, Lord Sikka, has come up with some things that would generate income for us that would help the majority of people. Why are the Government not at least thinking about some of these ideas?
I would say three things to the noble Baroness. First, this Government are not doing nothing to support people with the cost of living crisis; that could not be further from the truth. Over last year and this year, we are providing £94 billion of support to people to cope with the crisis, which is targeted at those on the lowest incomes who are least able to afford the increase in their bills. Secondly, the noble Baroness talks about revenue raising. Where we see windfall profits, we have taken action. The energy profits levy is going to raise billions of pounds in additional revenue in tax to support that action. Thirdly, at the end of last week, on Friday, the Chancellor announced new action to help people who are struggling with higher interest rates to afford their mortgage payments or to go on to new terms to cope with those payments—but, crucially, without adding fuel to the fire of inflation. I could not disagree with the noble Baroness more.