Good afternoon from New Economy Brief.
Riots are erupting across Europe. There are many causes, but a common factor is the cost of living.
With far-right parties gaining ground in elections worldwide, a timely new book from economist Isabella Weber sets out a policy package governments can use to make households more economically secure, ease the cost of living and in turn stem support for the extreme right.
This week’s New Economy Brief looks at the Joseph Rowntree Foundation (JRF)’s latest projections for living standards and asks: what would ‘anti-fascist economics’ look like in the UK?
Economic drivers of support for extreme right parties.
Economic insecurity is the uncertainty people face in meeting their essential needs and maintaining their standard of living. It can come from inadequate income, insecure work, limited savings or high living costs, and it leaves people exposed to shocks like an unexpected bill, reduced hours or a rent rise.
Economic insecurity helps the far right. Research on the electoral impact of fiscal policy across Europe since the 1990s has found that “austerity increases support for populist parties in economically vulnerable regions”, defined as areas with a high proportion of low-skilled workers. It concludes that “the success of populist parties hinges on the government’s failure to protect the losers of structural economic change.”
Since the financial crisis, the UK has also suffered from the ‘productivity puzzle’: a disproportionate slowdown in productivity growth compared with other OECD countries. Many economists attribute this to austerity and underinvestment.
Stagnant productivity growth and stagnant real wages. UK in a Changing Europe’s research found that UKIP’s electoral success in the 2010s could be traced back to deep public spending cuts. Areas hit hardest saw a “significant rise in UKIP support, driven by fears about job scarcity, public service quality, and economic stability”. These fears were “often misattributed to immigration, rather than austerity”.
This decade has seen the re-emergence of stagflation: low growth combined with high inflation from two fossil fuel supply shocks. Evidence from Germany after Russia’s 2022 invasion of Ukraine found that the resulting large, unexpected energy price rises increased support for the far-right AfD. Average wages in the UK have barely risen for more than a decade and a half. Living standards are set to be hit again this winter as the inflationary impact of the Iran war filters through to households.
As we covered a few weeks ago, the outlook for living standards over the rest of the Parliament is bleak. Taking the Iran war into account, JRF projects that average household disposable incomes after housing costs could fall by up to £770 a year between 2024/25 and 2029/30. That would make this the worst Parliament on record for living standards, with the poorest households facing the steepest falls. As Persuasion UK’s Steve Akehurst argues, “cost of living populism remains progressives’ best bet” if it wants to avoid the same fate as the many incumbents ousted over the rising cost of essentials.
The political case for improving household economic security is clear. But before looking at how the government can do this, let’s look further at the economic case for intervention.
The case for improving household economic security.
Another interesting JRF report looks at the productivity puzzle from a different perspective. What if productivity growth is low because wages and living standards are low, not the other way round?
It finds growing evidence that “economic security is not simply something that a growing, productive economy delivers to households. It can also be one of the conditions that allows people to contribute to a more productive economy in the first place.”
The report cites three studies showing that economic insecurity makes it harder for people to deal with poor health, to perform well at work, to protect their earnings when circumstances change, and to take the risks needed to move into better-paid jobs. Greater security, particularly for households least able to absorb shocks, could therefore boost productivity.
This has a couple of important implications. First, JRF argues that measures to improve household economic security should be seen not as a cost but as an investment in the foundations of productivity, giving people the breathing space to take risks and use their skills effectively. That turns the usual narrative about spending on poverty alleviation and welfare on its head.
Second, productivity growth is, in the OBR’s words, the “key determinant” of the long-term sustainability of public finances. Higher household incomes mean a bigger tax base, with more money circulating through high streets and local economies, rather than being swallowed by increasingly expensive essentials. (This is especially useful if, as economists like the TUC’s Geoff Tily argue, the UK’s ‘productivity puzzle’ is due to deficient demand since the financial crisis.)
Put another way, failing to tackle insecurity is expensive. Pro Bono Economics estimates it costs around £1,300 in lost output per affected person. Over 21 million UK people (56% of the working-age population) live with some form of economic insecurity, so the drag on GDP could be around £28bn (1% of the economy).
Economics to fight the radical right
Isabella Weber has similarly warned that rising prices of essentials often see incumbents replaced by the far right: “Hungry people lead to dictatorships.” Her new book examines the toolkit that helped a small selection of governments, such as Spain and Mexico, survive the last energy price shock. These include: fixed prices on a basket of essential food and hygiene items; frozen transport fares; guaranteed minimum prices for farmers (to boost domestic food production and build emergency buffer stocks); energy price caps; windfall taxes on banks and energy companies; anti-profiteering ‘observatories’ and more.
So what could make UK households more economically secure? JRF advocates a mix of policies that would “redistribute income and mechanically lower prices in a way that benefits the majority”. Among them are an affordable energy guarantee, rent controls and a protected minimum floor in Universal Credit. Similar proposals have been advanced by the New Economics Foundation (with their national energy guarantee); the Institute for Public Policy Research ( a ‘double lock’ on private sector rents); and by the Cost of Living Action coalition which unites more than 40 organisations around a comprehensive platform of transformational policy demands across incomes, costs and tax.
Whilst recent polls are showing weaker support for Reform UK than under Starmer, JRF’s income projections mean the new government shouldn’t take its lead for granted. The ‘Burnham bounce’ may not last without a clear plan to stop people feeling like they’re only one piece of bad luck away from economic disaster. A poverty reduction strategy could be good for the economy, the public finances and the government’s chances of holding on to power in an increasingly volatile world.
Stat of the week
£41.3bn
is how much Positive Money estimates that customers paid around for their bank accounts between 2022 and 2025 as banks pocketed additional profits from higher interest rates, rather than passing these on to savers.
UBS. Autonomy Institute has launched a website for their Universal Basic Services (UBS) Hub. UBS is the idea that the essentials of a decent life should be available to everyone, regardless of what they can pay — provided collectively, and free, or nearly free, at the point of use. Their new site host a live atlas of UBS-adjacent pilots and policies around the world.
Boiler Upgrade Scheme cuts would cost jobs. As the Guardian reports that the government is looking to cut funding on the Warm Homes Plan to fund higher defence spending, Verdant’s James Meadway calculates how many jobs might be lost. He estimates that for every £100m cut to the Boiler Upgrade Scheme, 540-930 job-years could be lost.
Warm Homes Plan cuts cost of living more than Rosebank. E3G calculated that if the Warm Homes Plan were to be delivered in full, it could reduce household energy bills by £1bn a year across the UK, concentrate on those with low incomes, boost GDP by 0.08% and create 50,000 new jobs spread across thousands of small businesses. The proposed new Rosebank oilfield, by contrast, would create around 1,100 direct and indirect jobs, concentrated in the North Sea and in two companies, one of which is an overseas investor, boost GDP by only 0.025% on average through its lifetime.
“The warnings are there; they are just not making it into the numbers.”Verdant’s James Meadway asks why the impacts of extreme weather events like El Niño aren’t included in the UK’s main economic forecasters, such as the Office for Budget Responsibility. As climate change can increase inflation and cush up spending on various social security payments like pensions which rise in prices, he explains “with only around £12 billion of headroom, there is not much space for these sorts of shocks”.
The end of neoliberalism and the acceptance of economic pluralism. An editorial from Renewal’s David Klemperer covers Yuan Yang’s Rita Hinden Memorial Lecture, where she explores “what does ending neoliberalism look like in practice? And what is the horizon beyond it?”
