Unite has condemned comments by Bank of England governor Andrew Bailey, who has said workers should not ask for pay rises to avoid a so-called ‘wage-price spiral’ – a theoretical scenario dismissed by many economists.
Bailey, who himself took home an eye-watering £575,538 salary including pension last year, told the BBC in an interview that there should be ‘moderation’ in wage rises to prevent inflation from becoming ‘ingrained’.
When asked if that means workers should not ask for pay rises, he said, “Broadly, yes – in the sense of saying: we do need to see a moderation of wage rises. That’s painful – I don’t want to in any sense sugar that message, it is painful.”
Only three months ago, Bailey himself dismissed the idea that the UK would see a wage-price spiral.
The very concept of a ‘wage-price spiral’, where inflation causes wages to rise and rising wages causes prices to rise, precipitating a cycle of long-term inflation, has long been called into question.
In a comment piece published only last week in the Wall Street Journal, chief policy officer at the Cicero Institute Judge Glock called the ‘wage-price spiral’ “a false and antiquated economic idea that refuses to die and keeps generating bad policies”.
“Wages don’t spiral up during inflation; they spiral down as higher prices eat away paychecks,” he noted. “The dollar amounts on paychecks will rise, but not fast enough for their real value to outpace inflation.”
Bailey’s comments come just after energy regulator Ofgem on Thursday (February 3) increased the energy price cap by a record-breaking 54 per cent, which will cause energy bills to further escalate from an all-time high come April. On the same day, the Bank of England increased interest rates from 0.25 to 0.5 per cent, which will push up the price of borrowing and further squeeze many already struggling households.
At a time when inflation is at a 30-year high, these twin announcements prompted Thursday to be dubbed ‘black Thursday’ amid an unprecedented cost of living crisis. Chancellor Rishi Sunak’s interventions to help people with rising energy bills have been widely criticised for not going far enough, especially for families who are struggling the most.
Commenting on Bailey’s remarks over pay restraint, Unite general secretary Sharon Graham said, “Yet again working people are being asked to pay for the pandemic. Working people do not need lectures from the Governor of the Bank of England on exercising pay restraint.
“Inflation has not been caused by working people and they should not be expected to pay for the failures of the market and Government policy,” she added. “Why is it that every time there is a crisis, rich men ask ordinary people to pay for it? Enough is enough, we will be demanding that employers who can pay, do pay. Let’s be clear, pay restraint is nothing more than a call for a national pay cut.”
By Hajera Blagg