The debate on inflation in government, in Parliament, and in the Bank of England is dominated by the need to curb workers’ wages. But this approach has ignored the elephant in the room: the role that corporations are now playing in driving up inflation through price hikes designed to boost their profits.
There is mounting evidence that such corporate profiteering is playing a key role in the latest wave of inflation. Ordinary people, hit by the biggest fall in living standards since records began, are paying the price for this corporate greed. As a movement, we need to step up our fight against greedflation.
Higher inflation since late 2021 has, of course, been affected by big problems in supply chains — a result of post-COVID trade disruption and Russia’s war on Ukraine. Climate change is also impacting food production and prices. But two excellent studies have highlighted how soaring profits are now having a big impact.
The Institute for Public Policy Research (IPPR) and Common Wealth think tanks have shown that profits were up 34 percent at the end of 2021 compared to pre-pandemic levels and that nearly all of this increase in profits was due to just twenty-five companies. As the IPPR recently said, “While families struggle to make ends meet, some companies continue to make higher profits from these price hikes. . . . It’s time for policymakers to look at ‘Greedflation’ and prioritise reining in corporate profits, instead of blaming workers’ wages for driving up inflation.”
Unite the Union, using the latest available figures for the largest 350 companies on the London Stock Exchange, recently showed that profit margins for the first half of 2022 were nearly double — 89 percent higher than the same period in 2019 before the pandemic. As Unite general secretary Sharon Graham correctly states, “Make no mistake, profiteering has resulted in the high prices we’ve all had to pay.”
Those organizations deserve great credit for bringing public attention to this debate. It is also very welcome that this focus on greedflation has gone well beyond the center left and is even openly discussed in the financial press, by investor bodies and by central bank officials.
One recent Financial Times article was headlined “‘Greedflation’: profit-boosting markups attract an inevitable backlash.” A Wall Street Journal headline asked, “Why Is Inflation So Sticky? It Could Be Corporate Profits” and went on to explain how “businesses are using a rare opportunity to boost their profit margins.” MoneyWeek, a popular UK financial, ran a piece titled “What should we do about greedflation?” that noted how “Companies’ price hikes have been driving inflation.”
Likewise, London economists and investment strategists are openly saying corporate profits are driving price hikes. Albert Edwards, global strategist at Société Générale, one of the largest financial services groups in Europe, tweeted, “More Greedflation? When are government [sic] going to force a halt to this price gouging?” The chief economist of UBS Global Wealth Management, Paul Donovan, stated that “Much of the current inflation is driven by profit expansion,” adding, “Typically, one would expect about 15 percent of inflation to come from margin expansion, but the number today is probably about 50 percent.”
A quick search shows that there is a broad range of officials — from those at UBS to Unite the Union, from Goldman Sachs and the European Central Bank to the US Economic Policy Institute (EPI) — suggesting that over half of all the current price markup is to do with corporate profiteering.
The Tory government, however, refuses to engage in this debate. Instead, it is using this crisis to weaken workers’ wages. In the words of the Bank of England chief economist, people should just “accept they are worse off.”
But wages are obviously not driving inflation. Real wages were down by 3.4 percent last year and continue to fall. The flip side of such wage falls is that “profits reached record highs” during 2022 and “remain historically high,” according to the Financial Times. So, where are the calls from Tory ministers for profit restraint?
If corporations hiking their prices to maximize those profits is now a major cause of the inflation crisis, what should be done about it? In the words of Robert Reich, the prominent US economist and former US secretary of labor under Bill Clinton, “To control inflation, we must take aim at corporate profits, not working people.”
In Parliament, I recently organized a debate on greedflation. Below are the three key ideas I pushed to tackle it.
An Excess-Profits Tax
Firstly, the kind of tax we have seen on the superprofits of oil and gas firms should be extended to all the other sectors of the economy that are making excess profits from this crisis at the expense of ordinary people. That would send a clear message to these companies that their profiteering must stop.
There’s rightly been a huge focus on the eye-watering profits of energy firms, though the government’s windfall tax has failed to deal with this properly and is full of loopholes. But excess profits are evident in other sectors too. For example, the big five banks are reporting soaring profits as they take advantage of higher interest rates, while supermarkets, food manufacturers, and agribusiness have benefitted from profit spikes.
The Treasury should set up a special unit for this excess-profit tax that can go after those all companies that are blatantly profiteering, ripping off customers, fueling inflation, and deepening the cost-of-living crisis. It’s worth noting that even Tory chancellor Rab Butler imposed such a tax in his 1952 budget speech, where he stated that “At a time like this, sacrifices should be equally borne. We are not prepared to see excessive profits being made.”
The government’s Energy Price Guarantee introduced last year, despite its obvious flaw of not making energy prices low enough, was an important break with the idea that the government cannot interfere in market pricing to protect people. Such price controls should be extended to other sectors. It is very welcome that London mayor Sadiq Khan has called for powers to allow him to impose private rent controls in London. Other countries do this, so why not here?
On soaring food prices, the French government has secured a deal with some of the country’s major retailers to place a price cap on staple foods to ease the pressure of inflation on consumers. So when we have the price of popular brands of baby formula soaring by 45 percent, shouldn’t we do that too?
The public backs this. A poll last year showed that 71 percent of voters support price controls that “place limits on the prices that companies can charge for certain goods and services, such as energy, housing and other essential goods,” including on essential foods. This support even includes the overwhelming majority of Tory voters.
Finally, hardly a day goes by when the effects of the privatization of our public services are out of the news, from the sewage scandal to rip-off rail fares and eye-watering energy prices. Every penny in profits that goes to lining the pockets of these scandal-hit companies is paid for by the public.
Returning energy, rail, water, and other key utilities to public ownership — where they can be run for people, not profit — is the best way of ensuring a permanent end to the profiteering that so many of these privatized companies are gratuitously engaged in.