Struggling households, sinking businesses: the Bank of England wants you to swallow some bitter news for your own good. You “need to accept” that you are poorer. Stop asking for wage rises. Do not sneak up prices. Surrender your “reluctance to accept that, yes, we’re all worse off”. Such thoughts only produce higher inflation – and that simply won’t do, according to the Bank’s chief economist, Huw Pill. In an interview this week, he accused families and business of indulging in a game of “pass the parcel” – pushing higher costs between themselves when what they really need to do is admit that “we all have to take our share”.
If Mr Pill himself displays such Zen-like acceptance, it may owe something to the fact that he received £88,000 for his first five-and-a-bit months at Threadneedle Street, equivalent to an annual salary of £180,000. Another advocate of serenity is the Bank’s governor, Andrew Bailey, who last year told workers not to make big pay demands, while raking in half a million pounds. Ordinary Britons may detect a touch of Versailles here, of being advised to chow down on brioche because no bread is to be found. Such statements do not enhance one’s authority, as Marie Antoinette could attest.
More than a quarter-century has passed since Gordon Brown set the Bank free, yet interest rates and inflation remain as political as tax rates and social security. Prices in shops, on forecourts and at the factory gate reflect who has how much power, whether that is oil producers in the Middle East, big supermarket chains or in-demand workers. For over a year, the Bank has been acting as if workers are an inflationary threat. It has raised rates over and over again, with another increase expected next week. Yet there has been no wage-price spiral, while data indicates that companies are pushing up prices to improve their margins – so much so that City analysts now fret about corporate “greedflation”. Such apparent profiteering has provoked no action from Rishi Sunak. Perhaps this shouldn’t come as a surprise from the administration that handed businesses billions for inadequate PPE and in loans that will never paid back.
Claiming that “we’re all in it together” will not wash at a time when FTSE 100 bosses are seeing their pay surge by an average of 23%, as they did last year. In a highly unequal country, the politics of what Mr Pill calls “getting poorer” are ugly indeed. A zero-growth economy produces zero-sum politics, in which interest groups fight with increasing force for their slice of a shrinking cake. Signs of that are everywhere in the UK this spring, most obviously with the breakdown of vital services, as nurses, doctors and teachers demand pay rises. Another symptom is the culture war fought by the Conservatives with increasingly blunt cynicism since 2010.
Letting market forces do their thing and preaching austerity-lite is no way to respond to this dire economic scenario. A progressive response would be to harness the financial firepower of the state to provide decent housing, health and education for one’s citizens, while also raising more revenue in capital gains tax, and in better taxes on property and land. For all the gloomy talk of the moment, the UK remains one of the richest societies in human history, with the ideas and energy to provide a better life for those who often get the short end of the stick. What it needs is the political will.
