Fanning the flames of inflation? As RMT members press ahead with strike action this week, Boris Johnson has warned of a ‘wage-price spiral’ should workers demand higher pay. In a speech delivered in Blackpool earlier this month, the Prime Minister said that wage increases could ‘fan the flames’ of inflation and argued that the ‘one cure’ to such a spiral would be ‘to slam the brakes on rising prices with higher interest rates’. The sentiment echoed Andrew Bailey’s instruction to workers not to ask for a pay rise and Treasury minister Simon Clarke’s warning that employers should be ‘very careful’ in setting pay rises.
A myth? Grace Blakeley argues that the current ‘wage-price spiral’ debate is based on a myth and that any current union action is focused on demanding wage increases in line with inflation, not above it. With workers ‘simply not in a position to demand higher wages’, external factors such as the war in Ukraine and supply chain issues clearly have a much stronger impact on inflation than wage demands, she argues.
Public sector pay. There is little evidence of a wage-price spiral taking hold, argues Richard Partington. While headline pay has risen by 8% in the private sector, public sector workers are seeing pay growth of only 1.5%, making this ‘the worst decade for real-terms pay growth since the Napoleonic war’. In real terms, nurses and paramedics are £2,000 a year worse off, while pay growth in the education sector is at just 0.3%. On Monday, Simon Clarke, the Chief Secretary to the Treasury, confirmed that public sector workers should not expect a pay rise in line with inflation and therefore should expect a real terms cut.
Profits-price spiral. Inflation is being driven by run-away profits, not wages, according to new research by the IPPR and Common Wealth. The analysis finds that the profits of the largest non-financial companies were up 34 percent at the end of 2021 compared to pre-pandemic levels. However, these profits are highly concentrated, with only 25 firms making up 90 percent of increases in profits. Furthermore, these companies are mainly located in a small number of industries - particularly in energy. With such considerable market power, these companies are able to drive up prices and have a disproportionate impact on the cost of living, the report argues. Common Wealth has summarised the key findings of the report in this thread and the IPPR’s Carsten Jung has more detail here.
Insulate Britain? No. 10 is reportedly drawing up plans to insulate ‘hundreds of thousands’ of homes to mitigate the cost of living for households before winter. However, the plans do not currently involve any new money and instead draw from existing schemes. £1 billion could be diverted from existing schemes to insulate poorer households and money could also be taken from the Public Sector Decarbonisation Scheme and the boiler upgrade scheme.
‘Who cares if Miami is six metres underwater in 100 years?’ A comment made by HSBC’s Global Head of Responsible Investment has caused concerns over the financial sector’s ability to voluntarily report and take action on the climate crisis. ‘Evidence continues to mount that the currently prevailing market-led approach to greening finance suffers from deep systemic issues’, argues New Economics Foundation’s Lukasz Krebel.
Climate denial think tank funding. A number of think tanks such as the Institute for Economics Affairs and the Adam Smith Institute have raised over $9 million in funding from American donors including oil companies and climate change deniers, according to an investigation by OpenDemocracy.
Mortgage affordability tests loosened. The Bank of England’s Financial Policy Committee’s latest review of the mortgage market confirmed that it will withdraw its affordability test Recommendation from August.
The politics of cash transfers. Cash transfers work and are an efficient way for government to spend money, argues the Financial Times’ Stephen Bush. As countries across the globe grapple with the cost of living crisis and potential solutions, the reluctance for states to adopt cash transfers is by and large an ideological decision and ‘is in large part about what governments see as their “real” job’ even when they are an easy and efficient solution.
Tiered monetary policy. The Chancellor could save nearly £60 billion for the taxpayer if he reformed the way the Bank of England pays interest on money held by commercial banks at the central bank, according to a new report by the New Economics Foundation. The paper calls for a tiered reserve monetary policy framework, a scheme used in the Eurozone, Japan and previously in the UK, that ‘permits the distinct separation of the Bank’s policy rate from the government’s interest servicing costs and the profitability of the banking sector’. The FT’s Chris Giles has a summary here.