Let's look at some of the issues that are arising from the government's treatment of the current inflation problems and the likely outcome.
Richard Murphy put a very long thread on twitter covering this and has subsequently blogged it.
Now, I like Murphy because to my mind he is rigorously logical in his analysis of economic issues and writes clear and easy to understand explanations of complex topics.
From his blog:
So far I am not seeing anyone saying clearly enough why this is wrong, and why the irresponsible party in these negotiations is the government.
First, let’s start with why we have inflation right now. The causes have nothing whatsoever to do with wage rises. Inflation was initially caused by the poorly planned reopening from Covid which led to a sudden increase in demand for energy and severely disrupted supply chains.
Then we got a war that was unexpected, which has led to more disruption, massive increases in fuel prices, and sanctions which have had already had a big impact on food prices. And China is still imposing serious Covid constraints.
But when it comes to wage rises, the public sector has seen about 1.5% pay increases in the last year. The private sector is 8%, but maybe half of that is in bonuses and most of it is for those already on very high pay.
So, the reality is that amongst people on average and lower earnings pay rises are leaving people much worse than they were before Covid. What there most definitely is not is a wage rise spiral. Pay is dragging way behind inflation and most definitely not fuelling it.
In that case where is the money that everyone is paying for higher priced goods and services going, because it’s not going to employees? The answer is it is going to companies, banks and speculators in oil, gas and food. In each case it’s giving them additional profits.
What this inflation is doing in that case is massively shifting the rewards in society from people who work for a living to those who make money by speculation. This is why oil, energy companies, banks and big commodity trading companies are all reporting massive profits.
So, the government is sitting by, and is even encouraging inflation by pushing up prices (by increasing interest rates and by collecting more VAT and duties) whilst saying nothing to those companies that are really fuelling inflation, ad letting them get on with it.
But then it turns round and says it must stop wage rises because these are what is fuelling inflation, when glaringly obviously that is not true.
But let’s suppose for a moment that the government wins. Imagine it succeeds in forcing 9% real wage cuts on public sector employees this year, on top of the well-documented loss of earnings they have already suffered over the last decade. What happens then?
This will mean three things. First, around 5 million people in the country will have a great deal less to spend after all essential bills have been paid, if those suffering the pay cuts can still afford to do that.
What that means is that all the business in the retail and leisure sectors where these employees might have spent to date will be in turn see a massive drop in their income from these people at the time their own costs are rising rapidly.
And given that if the government wins then many employers in the private sector will also try to impose low pay deals, it’s likely that large parts of the UK working population will face having to cut large parts of their discretionary spending very soon.
So, those businesses those employees with lower pay would have spent with will, again, have less income. In turn they will then cut costs, or staff pay, or make people redundant. And in that case even more people will have less to spend and so a recessionary spiral begins.
www.taxresearch.org.uk/Blog/2022/06/21/there-is-a-solution-to-public-sector-pay-disputes-if-the-government-wants-to-find-one/
There is a lot more, including proposed solutions. I hope some people are interested enough to read it all.