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Opinion

A Spanish lesson in standing up to profiteering during the cost of living crisis

11 Aug 2023 4 minute read
Inset: Carolyn Thomas MS

Carolyn Thomas MS

As the Bank of England raises UK interest rates for the 14th consecutive time and inflation continues to run out of control, it is high time that UK politicians and bankers thought about adopting a different strategy.

Inflation in the UK is the highest in the G7, significantly higher than the Eurozone average, and the highest out of Europe’s largest economies. This translates to higher bills for everyday goods, prolonging and extending the cost of living crisis which is pushing people across the UK into poverty.

It has led to the grotesque spectacle of supermarkets placing baby formula in security cases, or putting ‘dummy’ coffee jars on shelves, turning some supermarkets into dystopian grocery showrooms.

Despite the UK Government making the task of tackling inflation their number one political priority, the results are clear to see, and it is people the length and breadth of Wales and the United Kingdom who are literally paying the price for their failure.

Much of the cause of the UK Government’s dismal record on inflation comes down to an ideological aversion to state intervention. Unfortunately, having a government which is completely wedded to the idea that free markets will solve all our economic woes becomes a significant stumbling block when it is those very markets that are driving inflation.

But it doesn’t have to be like this, and we don’t have to look that far to see different solutions having far better outcomes.

Whilst the Bank of England raises interest rates to 5.25%, in Spain, inflation is running at just 2%. The reason why? The Spanish government recognised that in times of crisis, the state must intervene.

Price controls

Since 2019, Spain has been governed by the centre-left Spanish Socialist Workers’ Party (PSOE), in coalition with the left-wing Unidas Podemos (now part of the Sumar alliance). Like in the UK and across the rest of Europe, the Spanish government was forced to deal with rocketing energy prices following Russia’s invasion of Ukraine.

The Spanish government’s intervention went much further than that of the UK – not only did they cap prices and make a payment to households, they also significantly reduced VAT on electricity and gas, and implemented a social tariff for the most vulnerable.

State intervention wasn’t just limited to energy – another result of the Ukraine war was sustained and significant increases to food and fuel prices. The Spanish response was a form of price controls by completely removing VAT on basic foodstuffs, combined with a 20 cent per litre refund on fuel purchases, and windfall excess profit taxes.

Contrast this to the UK, where the government has steadfastly refused to introduce price controls or proper windfall taxes whilst supermarkets are boasting record profits and stand accused of price gouging on food and fuel prices.

In addition to these measures, the Spanish government announced that short and medium distance train journeys would be free, and introduced controls on how much private landlords were allowed to increase rents.

Yolanda Diaz, the leader of PSOE’s left-wing coalition partner Sumar, and Minister for Labour in the coalition government, also negotiated for, and oversaw, significant increases to the minimum wage.

Like in Spain, here in Wales, we have seen the fruits of progressive political partnership between Welsh Labour and Plaid Cymru, leading to the extension of free school meals, intervention on the crisis caused by second homes, and commitments to investigate rent controls.

Confident

The Spanish government’s response to the cost-of-living crisis was both progressive and wide-ranging, a confident display of state intervention in key pillars of the economy designed to tackle runaway inflation and ease pressure on household finances:

  • Windfall excess profit taxes
  • Price controls on food and fuel
  • Energy price caps coupled with social tariffs
  • Increases to the minimum wage
  • Free train travel
  • Rent controls

Here in the UK, whilst progressives have been calling for this sort of action, all of the above have been rejected and mocked by the UK Government as policies which would drive inflation. And yet, despite that, Spain shows that the opposite is the case.

Fundamentally, much of the Spanish response is about redistribution – proactively tackling profiteering in times of crisis, in order to strengthen the spending power of Spanish citizens.

If the UK Government is serious about prioritising reducing inflation, then it ought to take a Spanish lesson in how to stand up to profiteering.


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Ann
Ann
7 months ago

And by giving households help towards energy bills through the winter the UK Government effectively transferred taxpayers money to the energy companies rather than taxing the companies on their excessive profits!

Fi yn unig
Fi yn unig
7 months ago
Reply to  Ann

Yes, a very worthy added observation to Carolyn’s’ piece. It DOES NOT have to be this way.

Glwyo
Glwyo
7 months ago
Reply to  Ann

I expect the argument would be that, if you imposed additional taxes, they would increase prices to compensate. I am sympathetic to the argument that price caps can harm an industry by making profit impossible without cutting corners (of course I’m also sympathetic to the view that private companies will cut all corners in order to optimise profit anyway). An alternative approach could be to invest money instead into national energy and food infrastructure to push down retail prices, but then we have a central governemnt that believes public money and public infrastructure only exist for giving away to their… Read more »

hdavies15
hdavies15
7 months ago

More proof if any more was needed that UK is governed by a bunch of idlers who are way too cosy with their allies in big business. Unfortunately our devolved regime in Cardiff is also too fond of bonding with major corporates rather than allowing community based initiatives and SME’s take the lead on renewables. The rhetoric about local sourcing of food is impressive but the reality is deplorable. They would sooner buy fancy stuff from as far away as possible rather than foster local crop growing.

Frank
Frank
7 months ago

It’s called “corrupt Britain” where politicians and businesses are personally heavily invested in different industries. They are raking in the spoils of high inflation and out of hand escalating prices and mortgage rates. They are waiting in the wings to sweep up cheap property when borrowers have to sell up cheap to get out of debt. We would be far better off being governed by the Mafia. Prices of most things are decreasing world wide but not here in the greedy UK.

Ernie The Smallholder
Ernie The Smallholder
7 months ago

So, Carolyn, What can we do to stop this ? Wales will need to become independent of this UK government and for Wales to join our European allies as part of the European Union. High Inflation will always result from a central bank that increases money supply without a retrospec increase in real asset wealth (currencies are IOU notes). The European central bank has kept its increase in Euro money supply to a minimum and that is why they had less inflation. Also the UK has far less state assets than the average EU country. This is why Wales has… Read more »

Brances fottoms
Brances fottoms
6 months ago

We have never paid vat on food – when we joined the eu we won a battle to have food , children’s clothing and books zero rated. So arguing that we should do as Spain is doing just reveals ignorance!

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