Inflation steals from the people, and they would still be
robbed even if annual inflation-linked increases worked perfectly.
The State Pension from 14 April this year will rise by 3.1%,
in line with the Consumer Price Index (CPI). The ‘triple lock’ promise made to
pensioners in 2010 said that increases would reflect the highest of three
measures: 2.5%, CPI or National Average Earnings (NAEI).
- The Bank of England has a general inflation target
of 2% p.a. as measured by CPI https://www.bankofengland.co.uk/monetary-policy/inflation
, so clearly price inflation is getting a little out of hand. If we were on
track at 2% then pensioners would benefit in real terms from the minimum 2.5% element
of the triple lock.
- Last year, the Government suspended the NAEI
part of the guarantee for 2022-23, which would otherwise have triggered a
pension increase of some 8% following a higher rise in wage inflation owing to
the pandemic. https://www.thetimes.co.uk/money-mentor/article/pensions-triple-lock/
Darby and Joan would have been drinking champagne and doing an arthritic dance
in the street.
- So CPI it is, oldies. Setting aside quibbles about
exactly how CPI is calculated, and whether RPI would be a more appropriate yardstick
(the switchover of measures came in 2011, affecting social security benefits
and public sector pensions), we note that the Government measures CPI in
September but does not apply increases to pensions until the following April; a
lot can happen between those dates. For example, we now read that the latest
CPI figure for the last twelve months is 6.2%, exactly double what we are to
get from the Pensions Service. https://www.theguardian.com/business/2022/mar/23/uk-inflation-highest-level-in-three-decades
Yet even in an ideal world, where inflation was absolutely fairly
and accurately calculated once a year and pension increases applied
immediately, our bank accounts would still spring a leak.
The full rate of new State Pension will increase to £185.15
per week in April. For a couple each qualifying for that, the total income works
out at £19,255:60 p.a. or a shade over £1,600 per month; let’s work with that
round figure.
Now let’s assume that our couple spends every penny of their
pension, but that prices go up another 6% over the year, jumping suddenly by 0.5%
per month simple. Darby and Joan cope okay for April, but outgoings exceed
income by £8 in May, £16 in June and so on. At that rate, it’s easy to show
that they end the tax year £528 behind the line. Either they will borrow to
meet the shortfall (and pay interest – credit cards are charging something like
35%) or, more realistically, they will manage with less and/or lower quality in
the way of goods and services.
The following April, under this fantasy arrangement, inflation
indexing sets them straight again; but that £528 is never recouped; and they
face another year of the same process of gradual immiseration; and it goes on
forever.
The Bank of England tries to justify this theft:
‘If inflation is too low, or
negative, then some people may put off spending because they expect prices to
fall. Although lower prices sounds like a good thing, if everybody reduced
their spending then companies could fail and people might lose their jobs.’
Yet the BoE’s own calculator https://www.bankofengland.co.uk/monetary-policy/inflation/inflation-calculator
shows that during the century after Waterloo (1815), inflation
ran at an average of -0.1% (yes, negative) p.a.
However, the same calculator says that the cost of goods and
services worth £10 in 1915 soared to £1,093.82 last year; even an apparently
low average inflation rate of 4.5% a year still rots one’s wealth.
Debasing the currency by coin-clipping or forgery used to be
high treason: the last woman to be burned at the stake for it was Catherine
Murphy, at Newgate Prison in 1789. It is high time we tackled this official fraud,
the monetary disease of the twentieth century.
