‘Don’t scapegoat workers for inflation – blame corporate Britain and the Tory Brexit deal’

This week’s grim inflation data has reignited the row about how to bring down prices and get the economy growing again. 

Once again siren voices are sounding the alarm about a supposed wage-price spiral and are calling for restraint on wages. But this lazy thinking is simply not backed-up by the facts. 

We are in the most extreme living standards crisis for over two centuries. Working people are poorer than they were 15 years ago and families’ disposable income continued to fall last year.  

So let’s be crystal clear – wages are not driving inflation, they are not even keeping up.  

Recession is not a price worth paying to fix inflation

The government’s approach of asking for ‘patience’ as this cost-of-living nightmare deepens is deeply cynical. 

It masks a deliberate and reckless strategy to rely on ever higher interest rates to slow down the economy, increase unemployment and push us towards recession. Just this morning Karen Ward, a member of the Chancellor’s economic advisory panel, was on the airwaves talking up the supposed economic benefits of ‘creating a recession’.  

Jeremy Hunt may agree this is a price worth paying. But be under no illusion, this approach would hurtle us from one crisis into an even deeper one. 

A recession – at a time when growth is already exceptionally weak – is the last thing the country needs.  Yet again the government wants to make workers carry the can for its economic mismanagement. 

The Bank of England should also take a cautious approach. With growth so fragile, now is not the time to be raising rates.  

How we can deal with inflation

Policy makers need to look beyond the 1970s and find an effective way to bring inflation down today.   

So how do we go about go about doing this? 

Firstly, the main cause of today’s prices was solely an external shock to global energy and commodities markets.  

More could have been done to support consumers and businesses as prices rocketed, and as energy prices come down action is needed to ensure reductions are passed on to the wider economy.  

That would also help with the rise in core inflation for services, which contrary to much commentary today, is not mainly a consequence of wage rises. Firms across the country are having to confront rising energy and commodity prices as aeroplanes use fuel, restaurants buy food and hairdressers use electricity.  

 More widely, we need a fit-for-purpose energy system to speed up investment in our energy resilience – the storage facilities, upgraded networks and clean energy generation plants that will limit the UK’s exposure to the price spikes of globally traded gas.  

 And we need a publicly owned industrial champion for clean energy – like France, Germany, and Scandinavian countries have. The Big Five failing energy retail companies should also be brought into public ownership. 

Other countries are more generous supporting households

Second, we need to start talking about why we have higher inflation rates here than in the EU.   

The economic chaos post-Brexit has been a mess of the government’s own making. Their approach has tied businesses up in red tape and increased export costs, while simultaneously failing to deliver on the real investment and proper industrial strategy that were pledged.  

Other EU countries have also been far more generous than the UK in offering households support that cuts the price of energy, meaning lower inflation.

Third, instead of pointing the finger at workers – with family budgets under enormous pressure – policy makers should be looking in the direction of Corporate Britain.  

There is growing evidence of sellers’ inflation, where prices are being held higher than they need to be to boost companies’ profit margins and shareholder pay outs. 

So we should be focussing more on corporate profit margins and runaway executive pay.

Firms have choices about how they distribute income within their businesses. But many are choosing to feather the nests of those at the very top and of their shareholders as workers on lower and middle salaries struggle. 

CEO pay soared by over 20% last year and bankers’ bonuses remain sky-high.  

Where is the outcry about this? Why are those with the deepest pockets not being called upon to show restraint?  

Where is the plan for growth? 

All of the problems outlined above point to one inescapable truth – the Conservatives do not have a proper or sustainable plan for boosting growth.  In fact they do not have a plan at all. 

While America has brought in the Inflation Reduction Act to ease the pressure on families and businesses and to jumpstart growth – our government’s approach is just to ask people to get continually poorer.  

The UK desperately needs a Biden-style investment programme, focused on creating good jobs with decent pay, as part of an approach that will secure lower future energy prices. Instead we are locked into to a race to the bottom with working people being asked to pay the mounting price of failure. Britain deserves better.