Leading article: Welcome to 2011: a year of living frugally

Share
Related Topics

In his New Year's message David Cameron warns that a lot of economic "heavy lifting" will take place in 2011.

The Prime Minister is right about that. And ordinary households will take on most of the burden. A great deal remains uncertain about the economic outlook over the next 12 months. But one thing of which we can be sure is that 2011 will see the cost of living rise significantly.

VAT will go up to 20 per cent from Tuesday. This will mean an increase on already record petrol prices. Domestic fuel will remain taxed at 5 per cent, but thanks to the profiteering of the large power firms and the severity of the winter, many families will get an unpleasant surprise when they receive their next energy bills all the same. Public transport will become more expensive too. Train fares will increase from this month by an average of 6 per cent.

Most incomes will not keep pace with outgoings. Wages are likely to be stagnant, kept down by the looming threat of redundancy. And National Insurance contributions for employees will increase from April. There could be worse to come. Inflation remains above the Bank of England's 2 per cent target thanks to the rising cost of food and oil imports. And the general price level will rise higher still due to the VAT increase. If the Bank's Monetary Policy Committee decides that inflation is getting out of hand, it could raise interest rates. If this happens, private banks will increase their mortgage rates, further squeezing household incomes.

As we report today, a new poll suggests the British public is pessimistic about 2011. This hardly suggests that consumer confidence is about to come flooding back. And indeed it is doubtful whether it would be desirable for consumers to start spending freely again. The public have paid off mortgage and credit card debt in 2010, rather than spending it in the shops. This is sensible considering the excessive levels of debt many households accumulated in the years leading up to the recession.

The problem is that the state is joining in with the fiscal retrenchment. George Osborne's emergency Budget in June announced that there will be £22bn in spending cuts in the coming financial year (and some £80bn over the course of the Parliament). If private households are not spending, the state is cutting its expenditure and our trading partners in Europe are retrenching too, it remains a mystery as to where the demand that our economy needs to grow will come from.

The Labour leader, Ed Miliband, is correct that 2011 will be a year of economic consequences. These will be the consequences of decisions taken by the Coalition Government on dealing with the deficit. If Labour had formed a government after last year's general election it is true there would still have been spending cuts and tax rises. But the Coalition has chosen to eliminate the biggest deficit in post-war history over just five years and explicitly ruled out the idea of a contingency plan should the recovery stumble.

Moreover, the VAT rise, the raising of the cap on rail fare increases and the potentially destabilising pace of the spending cuts are decisions for which the Coalition cannot slough off responsibility. By the end of this year we will have a clearer idea of just how much of Mr Cameron's heavy lifting this country can, or is willing to, bear.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

Recruitment Genius: Pre-Press / Mac Operator / Artworker - Digital & Litho Print

Negotiable: Recruitment Genius: With year on year growth and a reputation for ...

Recruitment Genius: Project Manager - Live Virtual Training / Events

£24000 - £28000 per annum: Recruitment Genius: A Project Manager is required t...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE: SThree: SThree Group has been well establishe...

SThree: Trainee Recruitment Consultant

£18000 - £23000 per annum + OTE: SThree: SThree Group has been well establishe...

Day In a Page

Read Next
 

The strange absence of women on our cultural landscape, and what I decided to do about it

Sian Norris
Bahrainis on an anti-government protest in May  

Hussain Jawad's detainment and torture highlights Britain's shameless stance on Bahraini rights

Emanuel Stoakes
The difference between America and Israel? There isn’t one

The difference between America and Israel? There isn’t one

Netanyahu knows he can get away with anything in America, says Robert Fisk
Families clubbing together to build their own affordable accommodation

Do It Yourself approach to securing a new house

Community land trusts marking a new trend for taking the initiative away from developers
Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

Money, corruption and drugs

The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

150 years after it was outlawed...

... America's first slavery museum is established in Louisiana
Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
Tony Oursler on exploring our uneasy relationship with technology with his new show

You won't believe your eyes

Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

Moores must go. He should never have been brought back to fail again

The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn
Yvette Cooper: We can't lose the election. There's too much on the line

Yvette Cooper: We can't lose the election. There's too much on the line

The shadow Home Secretary on fighting radical Islam, protecting children, and why anyone in Labour who's thinking beyond May must 'sort themselves out'
A bad week for the Greens: Leader Natalie Bennett's 'car crash' radio interview is followed by Brighton council's failure to set a budget due to infighting

It's not easy being Green

After a bad week in which its leader had a public meltdown and its only city council couldn't agree on a budget vote, what next for the alternative party? It's over to Caroline Lucas to find out
Gorillas nearly missed: BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter

Gorillas nearly missed

BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
Downton Abbey effect sees impoverished Italian nobles inspired to open their doors to paying guests for up to €650 a night

The Downton Abbey effect

Impoverished Italian nobles are opening their doors to paying guests, inspired by the TV drama
China's wild panda numbers have increased by 17% since 2003, new census reveals

China's wild panda numbers on the up

New census reveals 17% since 2003