Mel Stride – 2022 Speech on the Cost of Living Crisis

The speech made by Mel Stride, the Conservative MP for Central Devon, in the House of Commons on 17 May 2022.

I rise to very much welcome this debate, which addresses one of the great challenges of our time: the cost of living. Right at the centre of that lies the rate of inflation, which many Members have referenced in the debate so far, and that responsibility is with the Bank of England. In very recent times, the Bank has come in for a good deal of criticism for apparently not having got on top of that rate of inflation. It is currently above 7% and will rise to 10% in the autumn, before falling back again next year. That is well detached from its target of 2%, so the question arises: is the Bank of England culpable for having missed that target to that extent? I want to speak—partially, at least—in defence of the Bank of England, which is one of the most important independent institutions in our country, and to make the following observations.

First, as the Chancellor has already pointed out, the level of inflation across the world is elevated. There are some exceptions to that, but most leading economies are facing very high levels of inflation. In fact, the United States, Spain and Germany have higher rates of inflation than we do in the United Kingdom, and our rate is broadly similar to that across the eurozone.

My second point is about what one can expect from monetary policy under the current circumstances. The main drivers of inflation are a war in Ukraine; surging energy prices; surging food prices; some of the effects of the unlocking of the economy and its rapid growth, and supply chain bottlenecks that developed as a consequence; and then what played out in the labour market as the economy opened up. Very few of those factors are amenable to being controlled through interest rates and monetary policy. Of course, it takes time for monetary policy to take effect. If interest rates are put up, it typically takes about a year or more, through the transmission mechanism, to have an effect on demand and to start to bear down on inflation.

For about 80% of the rise in inflation above the 2% target, therefore, we should not hold the Bank of England particularly culpable. The notions of those people—some of whom are on my side of the House—who have called into question the independence of the Bank of England as a consequence of high inflation are misplaced. We should firmly defend the Bank of England in that respect.

There is one area, the other perhaps 20% of the growth in inflation, which relates to what has happened in the labour market, where the Bank is at least partially culpable, because it was slow to establish the fact that the market was getting overheated. What appeared to be isolated areas, such as among HGV drivers and other pools of labour in the labour market, soon spilled over into a more general price increase across labour. The danger now is that we will have a wage-price spiral in which wages chase prices and, in turn, drive up wages further. There is a real danger that we are in a position where future expectations of inflation have become substantially de-anchored from that 2%, which will be a challenge in the medium and longer term.

Overall, however, it is extremely important that we have confidence in the Bank of England, imperfect though it is, and even though it is presiding over a situation in which there are high levels of price increases.

Stephen Timms

I agree with the right hon. Gentleman about the independence of the Bank of England. At the Liaison Committee in March, he suggested to the Prime Minister that there should be a one-off uprating of benefits, given that inflation is much higher than the 3.1% by which uprating was applied. I agree with him about that and I wonder whether he stands by that suggestion.

Mel Stride

I thank the right hon. Gentleman for that intervention, and I do indeed stand by that. I still believe that it is possible, in a relatively fiscally neutral manner, which would not require a fiscal loosening across the period of the Office for Budget Responsibility forecasts, to smooth the way in which benefits are indexed. It seems particularly regrettable that benefits such as universal credit are tagged to a 3.1% increase, which goes back to what inflation was in September, given that we are now facing 8%, 9% or 10%-plus inflation. There is the possibility of smoothing that out, so that on the way up it becomes less painful for people, and some of it will be taken back as it all comes out in the wash for everyone down the line. I am happy to continue to work with him with that in mind.

That brings me to other fiscal measures that can be taken to ease things for our struggling constituents. We have heard about a windfall tax in great detail today, which I would support. Although I would not be as partisan as the way in which the right hon. Member for Doncaster North (Edward Miliband) made his case earlier at the Dispatch Box, I think the arguments that he has put forward are largely sensible. I am pleased that in turn the Chancellor has indicated that the door is at least partially open, albeit caveated on the investment performance of the companies concerned.

Unlike the Opposition, I think that it is important to look at the size of the civil service and to have an ambition to get it back to its size in about 2016 before a number of these different crises struck and we had to gear up the numbers involved. If we were to do that, it would be possible to save a total of £3.5 billion a year, which would be a useful amount to have.

I am sorry, Madam Deputy Speaker, but I have completely run out of time. I had much to say, as I know many other hon. Members will.