Pay restraint: what the experts think

Blundering Bailey

“Unhappy times are here again,” said Martin Wolf in the FT. Thanks to soaring inflation, “the Bank of England is forecasting the weakest growth of real post-tax labour incomes in more than 70 years” – with a fall of 2% this year and a further 0.5% in 2023. Yet up pops governor Andrew Bailey to urge pay restraint. “We do need to see a moderation of wage rises… to get through this problem more quickly,” he said.

This immediately earned a slap down from the Government, which stressed “Boris Johnson’s desire for a high-wage, high-growth economy”. Bailey’s remark was certainly unpopular. “But analytically he was right.” The more wage earners “seek to restore their purchasing power” in an economy hit by “externally imposed losses”, such as energy prices, “the higher will be inflation and the more merciless the needed monetary squeeze”.

1970s folk myth

Bailey’s spectre of wages rising “out of control” summons up “scary 1970s folk myths, in which the unions were blamed for striving to keep up with mushrooming inflation”, said Polly Toynbee in The Guardian. But there is something grotesque about a central banker who earned £575,538 last year demanding restraint from “hungry families relying on food banks”. As Torsten Bell of the Resolution Foundation asked: “Why wages? Why didn’t he call for profits to be squeezed?” Unsurprisingly, union leaders also weighed in to lambast Bailey. So too did economist Julian Jessop of the free market think tank the Institute of Economic Affairs, said the FT. “People should ask for the biggest pay rise they can get,” he tweeted. “Wages are a relative price, like any other, and should be left to the markets.” Tesco chairman John Allan joined the fray as well, telling the BBC that the supermarket’s employees “deserve to be protected from inflation”.

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Tone-deaf

“A self-feeding spiral of higher inflation and rising wages would be damaging,” said Swaha Pattanaik on Reuters Breakingviews. But so too would be the inevitable hit to consumer spending – a vital engine of the economy – “if pay falls too far behind inflation”. There are no easy answers. But having spent too long “insisting that price pressures were transitory”, Bailey’s remarks were, at best, “tone-deaf”.