I was scheduled to do a ten-minute session on BBC national radio this morning, but what seems to be a tacit agreement by broadcasters to have a by-election purdah has apparently disrupted the plan, so it may not happen until next week now. The discussion was to be on why I thought the government was wrong about inflation and public sector workers should have a pay settlement now. These were my speaking notes, prepared in advance but highly unlikely to have all got a mention:
In my opinion the government is talking a lot of nonsense about inflation
In the summer of 2021 no one was really expecting serious inflation but some of us had been talking about the problems to come from the reopening from Covid
- I warned of the problems of reopening
- And that everything might be disorganized as that happened, with real economic risks arising
- Which is what happened, although almost no one else predicted it
- And the government did nothing to plan for or mitigate this foreseeable risk
- As a result, they did not stop companies profiteering from it
- And they did not realise that they could and should have changed the way energy was priced, and did nothing about it
- Just as they did nothing to tackle the issues arising from Brexit - which seriously added to all these issues
- The offer they did make to tackle rising fuel prices was bizarre – including enforced loans that were rightly mocked
Then we got war, sanctions, an enhanced fuel crisis and the real risk of food price increases
- And the government did not cut taxes on fuel or energy. It could have done. Inflation might bring it an extra £30 billion or more in revenue this year
- And it botched its refund scheme, because the real aim of that is not to help people to reward energy companies by making sure they get paid
- Nor has it led to a demand for international coordination of response to these issues - which is what is required
- It actually did almost nothing
Except that it let the Bank of England increase interest rates
- A policy designed to hit those suffering a cost-of-living crisis even harder
- And which will leave banks and the wealthy a lot better off
- Banks could gain more than £20 billion a year in extra payments from the government as a result of interest rate rises – much more than pay rises for 5.5 million employees would cost
- It's as if money flooding upwards is the answer to our inflationary problems in the government's opinion
In response, they have demanded that people on average and lower pay do not ask for pay rises
- But inflation is now 9%
- For those on low pay it is higher
- And average pay rises are 4%
- In the state sector they're 2%
- That's probably going to be an 8% cut
- On pay before tax that's for a person on average equivalent to a pay a cut of maybe £3,000
- After tax it will be a cut of well over £2,000
- And the government has no clue why people are angry
They're angry because
- The government is lying about why we have inflation – it has nothing to do with wages
- Because the government is going to take more in tax this year - most from people who're suffering the most and they will not acknowledge this
- They're angry because they're living in the edge
- And because some of them know they will topple over it
- People could lose their homes, their families, and their whole well-being because of this
- And the government does not care
But worse:
- People know the government can afford this. The extra taxes it will collect as a result of inflation may be double the cost of settling decent pay claims
- And they know if those pay claims are not met the public services - already under stress - might collapse as people have to move to find work elsewhere
- And this matters to everyone who works in the public sector
What I also know is that if the government gets its way and working people bear the burden of this crisis which they have not in any way created then we're going into deep recession:
- Pro-Bank of England and government economists are already saying it will cost a million or more jobs to stop inflation, and maybe many more
- But that's because they think inflation can only be tackled by pushing people into despair and businesses into bankruptcy
- Actually, as they head us for recession, quite deliberately, I think the situation could be much worse than they forecast
- They're toppling us into something we have not seen for a lifetime, maybe, in the form of many millions unemployed. When you set out to crush the economy and the people in it, as they're doing, that is what can happen
- And that is not unnecessary – it can only be described as class warfare on those who have done nothing to create this crisis
So, what should we do?
- Fair pay rises now of maybe 4 or 5% - plus inflation compensation bonuses of another 4% or more to be paid for a year until we know how things settle down. This inflation might go if the world stops panic buying fuel to inflate the profits of oil companies. We have to allow for that uncertainty - but with the commitment being made to consolidate these bonuses into pay if inflation continues
- Cuts in tax on fuel and energy to reduce the actual rate of inflation
- Return to very low interest rates so people can afford to stay in their homes and businesses can survive
- A package of new spending funded by QE - as Covid spending was - to keep the economy going as it heads into a recessionary crisis
- And an end to the lies about what's causing inflation
- Plus frank admission that the government has got this very, very wrong
- And that it can do a lot to put it right e.g, by ending pointless fights with the EU.
What if the government ignores that advice?
- We're heading for very real economic trouble
- And it will be entirely by choice
- We do not need a recession – but it looks like the government and Bank of England want one – and that, plus Brexit, is a recipe for a very British disaster
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Politically, the most scandalous issue is that if we reflect on the scale of profiteering from inflation, the richest haul is yielded by the government itself through taxation (on energy, VAT etc), and while ordinary people suffer the consquences in the price they pay for vital goods and services, the Government foot-drags its profitable way to weak solutions; under a spew of meaningless Johnson sound-bites.
This is a super article and one that the BBC interview would in no have time to cover, so is there another forum other than here or on Twitter in which the article might be published to reach a wider and larger readership? Thanks again Richard.
I am in the Mirror this morning
I should go and get a copy
Worry not. This morning I was listening to the Early Breakfast Show on Times Radio when at 05.45 Professor Alock Kumar from Birkbeck College was being interviewed in respect of the Railway Strikes and he was proposing exactly the same remedy as your good self and even went as far as to suggest that the railway companies are corrupt in respect of government money taken and the government inept by staying out of discussions.
I wonder which Ministry brought pressure to bear on the BBC to pull your interview?
Thank you for sharing this Richard.
Last night on Newsnight Marianna Mazzucato locked horns with one Boris’ advisors – another anodyne orthodox arsehole, balding and wearing glasses – whose name and input was eminently forgettable – who advised Marianna to ‘look at the data’ as she spoke about BREXIT and external price hikes as opposed to wage growth causing inflation.
And what did Anodyne Orthodox Arsehole advocate: more aggressive interest rate hikes of course!
At least they did have Mazzucato on – that in itself is a wonder. Only caught the tail end of it – the BBC person seemed to cut across M now and again – its as though they are terrified of this coherent narrative getting too widely understood.
Gerald Lyons, Chief economic strategist at NetWealth and former advisor to Boris Johnson when Mayor of London.
He said the causes are Supply shock and ‘lax monetary policy”.
Prof Mazzocato said globally the labour share of income is a record low and the profit share is at a record high -not because they have become smarter.
He did not explain how lax monetary policy had no impact for 11 yeares and then did when Covid ended, Brexit impacted and war started
How very odd
Well, he was downright rude to Mazzucato, condescending and aggressive as well, although she kept her head up and did not look ruffled.
I was surprised and heartened by a number of people mentioning it in the Guardian today who seemed to favour Mazzucato’s narrative,
Richard
A number of monetarist economists, if not the BoE or Fed, did predict this rapid inflation. The point that they made was that while the ‘lax’ monetary policies of the previous decade had not resulted in a very rapid increase in the money supply in the hands of the non-bank public, the response to Covid did – and that if this ‘excess’ money was not withdrawn either by taxation or QT, the result would be inflation.
But there is no evidence that this happened
Yes – I watched it as well and it was Gerard Lyons.
He spouted utter drivel or as Mick Lynch would say ‘twaddle’ and it was all ‘total nonsense’.
I note that he has also put a clip of the debate on his twitter account.
Richard its worth a watch – https://www.bbc.co.uk/iplayer/episode/m0018lt0/newsnight-22062022. It starts at 13:10 finishes at 20:27
If you watch the entire interview from BBC iplayer Gerard Lyons says ‘ The problem here is not a wage price spiral’.
He goes on to say that the 2 key factors are ‘supply shock’ and wait for it….. ‘very lax monetary policy…..inappropriate monetary policy over the last 18mths’
Then he says ‘what we need to see is more money in the pockets of workers’ and ‘for govt to actually manage to calm down expectations’…..’the govt has provided very significant financial support….that will mitigate the higher fuel prices….what we need to have in the UK is a tighter monetary policy…..’
Thanks
Would have been nice if Mr. Lyons had been asked if his business would benefit from the higher interest rates he is espousing.
I think we all know the answer to that question…
In the news today, the government was in discussions with Centrica to reopen the gas storage facility that was allowed to close in 2017. If the government was serious about supporting the country through this crisis, it could simply take it over as a national asset, and set to fill it in preparation for winter. If the gas was held in a national gas storage, as a state asset, then there would be no reason why it could not be sold at a subsidised discount, during price spikes, if needed to control prices. I’m no expert on the energy market, but surely something along similar lines could be worked out if politicians were serious about doing anything, which we know they are not.
I cam across this quote yesterday which seems to sum up what may be the problem.
“Passive Leadership (also known as laissez-faire leadership) is when a leader is chronically absent and does not respond promptly, pursue issues, take responsibility or address problems. It is one of the most destructive forms of leadership.”
The rot does start at the top.
The problem is that we have a leader in Johnson who has no idea as regards government but is the epitome of self promotion, irrespective of the cost to he country. The sooner he and his coterie are gone and replaced by people who understand what government is, as opposed to poplulism, about the sooner we will start to get through this problem.