Rishi Sunak’s government said it is stepping up efforts to tame soaring inflation by threatening a crackdown on corporate profiteering and signaling its determination to limit public sector pay rises.
(Bloomberg) — Rishi Sunak’s government said it is stepping up efforts to tame soaring inflation by threatening a crackdown on corporate profiteering and signaling its determination to limit public sector pay rises.
Chancellor of the Exchequer Jeremy Hunt will meet industry regulators this week to discuss how to ensure firms are not taking advantage of the economic turmoil by raising prices, while the prime minister hinted on Sunday he may take the unusual step of rejecting recommendations by the independent pay review bodies for public sector wage increases if they are too high.
Both measures point to the government trying to work with the Bank of England to tackle the UK’s stubborn inflation problem. The central bank was criticized by members of Sunak’s Conservative Party after it raised rates by half a point to a 15-year high of 5% last week, its most aggressive move in months, amid fears it would trigger more mortgage pain for ordinary Britons during a cost-of-living crisis.
After the rate decision, BOE Governor Andrew Bailey called for workers to rein in pay demands and said businesses must stop trying to raise profit margins. But the bank has previously been relaxed on profiteering, saying there is little evidence that it is widespread, while the impact of public sector wages on inflation is dwarfed by pay increases seen in the private sector.
Read More: Sunak Has Options to Help BOE on Inflation – Just No Easy Ones
What is clear is that the Sunak’s government is under fierce political pressure over inflation. The Conservatives trail Labour in the polls by 25 points in the latest YouGov poll, as the government struggles to show it is mending an ailing economy facing the stickiest inflation in the Group of Seven advanced economies, soaring mortgage costs, worker shortages and anemic growth.
Sunak conceded Sunday that overriding the pay bodies would risk further labor stoppages, especially as the UK has already lost 4 million working days to strikes since the start of the year, the most since 1990. The prospect of further strikes over pay will only damage growth. Last week, the Office for National Statistics said a four-day junior doctors’ strike had weighed on the economy in April.
“There’s no point in me doing something that sounds popular and nice today – for example, on public sector pay, I would be giving with one hand and we would just be taking with the other through higher inflation and interest rates,” Sunak told the BBC. “I’m going to do what I think is affordable.”
Political Damage
Unions were outraged by the suggestion that the government might override the pay review bodies, as their recommendations are already for sub-inflation rises and below levels many are demanding. Moreover the government for the past year has defended public sector pay awards, arguing it’s heeding the recommendations of those very panels.
Patrick Roach, general secretary of the NASUWT teachers union, said the government risked “demonstrating even more contempt for the teaching profession,” having signaled the proposals would be adopted.
Meanwhile Hunt will hold talks with the Competition and Markets Authority as well as the energy, water and communications watchdogs — Ofgem, Ofwat and Ofcom — on Wednesday. He has previously spoken with retailers as food prices have risen almost 19% in the past year.
Sunak’s spokesman Max Blain on Monday told reporters that the government wants to ensure supermarkets are passing on falls in food prices to consumers, and banks are relaying interest rate rises to savers.
Yet the government quickly backed away from suggestions in recent weeks that it could ask supermarkets to impose what it called voluntary caps on the prices of essential goods. The industry pushback was immediate, and illustrated the government’s limited options when it comes to tackling inflation.
Read More: Sunak Risks Failing on His Five Key UK Pledges at Halfway Point
Supermarket bosses will also appear before parliament on Tuesday when they will be asked about soaring food prices.
Political Fallout
Analysis by the Labour Party published Sunday showed new mortgages for a typical UK household now cost over £2,000 ($2,550) a year more than in France and £800 a year more than in Germany and the Netherlands.
Labour has labeled it a “Tory mortgage penalty” and polls show that accusations of economic mismanagement by the Conservative government are cutting through with voters. Sunak is at risk of missing his pledges to halve inflation, grow output and bring debt down this year.
As the pressure builds ahead of a general election expected in 2024, some Conservative MPs have hit out at the Bank of England and what they regard as its failure to get on top of inflation quickly enough after prices took off in early 2022.
But Sunak told the BBC that the BOE “is doing the right thing, has my total support.” To homeowners he said: “We’ve got to hold our nerve.”
Four members of the BOE’s rate-setting committee, including Bailey and chief economist Huw Pill, speak publicly this week, when they are expected to set out why they shifted gear and whether a recession will be needed to tame inflation. The BOE will also publish the latest data on household interest rates, which are expected to show a big jump.
Sunak will also give more details about his NHS staffing plan, which he said would be “the largest expansion in training and workforce in the NHS’ history.”
–With assistance from Kitty Donaldson.
(Updates with comment from Sunak spokesman in 11th paragraph.)
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