London Daily

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Sunday, May 11, 2025

Inflation is setting the Government against the workers with toxic results

Inflation is setting the Government against the workers with toxic results

In October, 417,000 working days were “lost” in the UK thanks to strike action, the highest such loss for around 11 years. Dramatic? Not really. It’s a mere blip relative to periods of industrial unrest in the 20th century. In September 1978, the worst point in the original “winter of discontent”, almost 12 million working days were lost. During the 1926 General Strike, 162 million working days were lost.
Admittedly, things have got progressively worse through November and December. We’ll have to wait until the statisticians collect the relevant data for a clearer picture to emerge (assuming, that is, that they haven’t gone on strike too). Through December, however, we know that rail workers, nurses, ambulance workers, bus drivers, baggage handlers, the border force, driving examiners, traffic officers, teachers and Royal Mail workers have all, on occasion, withdrawn their labour. We’re on the brink of facing the worst collective industrial action since at least the late-Eighties.

How have we got to this point? Let me take you back to earlier in the year, when Andrew Bailey, Governor of the Bank of England, suggested that wage moderation was desirable. In his words, “we do need to see a moderation of wage rises, now that’s painful. But we do need to see that in order to get through this problem more quickly”. In response, Sharon Graham, the General Secretary of Unite, said “workers didn’t cause inflation or the energy crisis so why should they pay for it?”

This little spat captures beautifully the fundamental problem with inflation-inspired industrial disputes. The language used tends to focus on ‘fairness’. But knowing what’s fair and what isn’t is not straightforward when inflation is both high and volatile. That’s why central banks are tasked with keeping inflation low and stable. Doing so allows all of us to use a reliable monetary yardstick. Today, however, that yardstick has gone. Inflation was rising swiftly even before Vladimir Putin invaded Ukraine. Since the invasion, inflation has reached levels not seen in many a decade.

Ms Graham was, of course, absolutely right to say that “workers didn’t cause…the energy crisis”. Yet that doesn’t alter the fact that the nation as a whole is worse off thanks to higher energy prices. We have suffered a negative terms of trade shock: we are paying more for our imports of gas than we were previously and, as such, we are worse off than we once were. Someone will have to take the hit.

To date, workers in the private sector have fared better than their public sector counterparts: their wages are currently rising around three times faster. That’s partly because unemployment is low and vacancies are high. Companies hoping to stay in business have no choice other than to pay more to attract workers. The Government doesn’t have to worry quite so much in the near term about such calculations. Yet the more the gap between private sector and public sector pay widens, the greater is the risk that some of our essential public services begin to implode.

No government can accept such an outcome, one reason why striking public sector workers hope to secure better deals than they have, so far, been offered. Yet should public wages rise faster than the Government has pencilled in, Bailey could be forced to admit that the UK’s inflationary problem is likely to persist for longer than the Bank is currently projecting. That, in turn, is likely to mean higher interest rates for longer. The Government knows this, of course, one reason why it is keen to avoid a series of what it regards as “excessive” increases in public sector pay.

Underneath all this is a problem that really hasn’t seen the light of day since the Seventies. We have tended to regard inflation in recent years as merely a technical challenge, one that can easily be solved through the occasional tweak in interest rates. That, however, is incorrect. Inflation can quickly become a political problem because it either creates new, or amplifies existing, injustices. Once those injustices become a part of the political narrative, inflation is in danger of becoming a lot more persistent: at any one point, some groups in society will feel they have been “left behind” and will push for “catch-up” compensation. Put another way, rather than causing inflation, rolling industrial disputes are a consequence of inflation’s own inherent unfairness.
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