The UK government is stepping up efforts to tame soaring inflation by threatening both a crackdown on corporate profiteering and another round of deep real terms cuts to public sector pay.
Chancellor of the Exchequer Jeremy Hunt will meet industry regulators this week to discuss what can be done to stamp out so-called “greedflation” as firms take advantage of the crisis to raise prices.
Prime Minister Rishi Sunak also signaled on Sunday that he may take the unusual step of rejecting recommendations by the independent pay review bodies to screw down public sector wages once more.
The potential measures suggest a new twin-pronged assault on the UK’s stubborn inflation problem, with the government prepared to take action alongside the Bank of England.
Last week, the BOE raised rates by half a point to a 15-year high of 5%, its most aggressive move in months, following the fourth inflation shock in a row. After the vote, Governor Andrew Bailey said businesses must stop trying to raise profit margins and workers needed to rein in pay demands.
Sunak conceded on Sunday that defeating inflation may cost him politically. Overriding the pay review bodies would risk further strikes but he told the BBC’s Sunday with Laura Kuenssberg show that “there is no alternative to stamping out inflation, inflation is the enemy.”
The UK has already lost 4 million working days to strikes since the start of the year, the most since 1990. The prospect of further strikes over pay will only damage growth. Last week, the Office for National Statistics said a four-day junior doctors’ strike had weighed on the economy in April.
“There’s no point in me doing something that sounds popular and nice today – for example, on public sector pay, I would be giving with one hand and we would just be taking with the other through higher inflation and interest rates,” Sunak said.
“I’m going to do what I think is affordable, what I think is responsible. Now that may not always be popular in the short-term but it’s the right thing for the country.”
The measures come with the Conservative government trailing Labour in the polls by 25 points as it faces a barrage of problems — from the stickiest inflation in the Group of Seven advanced economies and crippling mortgage costs, to worker shortages and ailing growth.
Analysis by the Labour party published Sunday showed new mortgages for a typical UK household now cost over £2,000 a year more than in France and £800 a year more than in Germany and the Netherlands.
Political damage
In a measure of the political damage being dealt by sky-high inflation, Labour has branded the high interest rates needed to address it the “Tory mortgage penalty.” Sunak is now at risk of missing his pledges to halve inflation, grow output and bring debt down this year.
Hunt will hold talks with the Competition and Markets Authority as well as the energy, water and communications watchdogs — Ofgem, Ofwat and Ofcom — on Wednesday.
He has previously spoken with retailers as food prices have risen almost 19% in the past year. Sunak urged supermarkets to price “responsibly and fairly” but no further action was taken. Supermarket bosses will also appear before parliament on Tuesday when they will be asked about soaring food prices.
Although BOE analysis suggests price gouging is not widespread, there may be isolated examples or emerging threats that are making it harder to tame prices.
Government’s ‘contempt’
Unions were outraged by the suggestion that the government might override the pay review bodies, as their recommendations are already for sub-inflation rises and below levels many are demanding.
Patrick Roach, general secretary of the NASUWT teachers union, said the government risked “demonstrating even more contempt for the teaching profession,” having signaled the proposals would be adopted.
The country remains in the grip of industrial action. Junior doctors last week announced plans for a five-day strike – the longest yet.
Sunak, a multimillionaire, told the BBC that the BOE “is doing the right thing, has my total support.” To homeowners he said: “We’ve got to hold our nerve.” The Scottish National Party’s Westminster Leader Stephen Flynn described the comment as insulting to those struggling to make ends meet and “peak millionaire Tory talk.”
The BOE is also under intense pressure for what many see as a failure to get on top of inflation quickly enough after prices took off in early 2022.
Four members of the committee, including Governor Bailey and chief economist Huw Pill, speak publicly this week, when they are expected to set out why they shifted gear and whether a recession will be needed to tame inflation. The BOE will also publish the latest data on household interest rates, which are expected to show a big jump.
Sunak will also give more details about his NHS staffing plan, which he said would be “the largest expansion in training and workforce in the NHS’ history.”
© 2023 Bloomberg
