No ‘inflation-busting’ pay rise for public sector workers, Treasury says

Public sector workers cannot expect “inflation-busting pay increases” that risk fuelling the “evil of inflation” further, the chief secretary to the Treasury has said, as Downing Street urged private companies to consider pay restraint.

Simon Clarke called for “public-sector pay discipline” and “collective society-wide responsibility” in order to prevent a 1970s-style wage-price spiral.

It comes as 40,000 rail workers were expected to bring much of the country to a halt with a series of one-day strikes in support of a wage increase to keep up with prices.

The Bank of England last week forecast inflation was set to hit 11% in the autumn as it hiked interest rates to 1.25% – the fifth successive rise.

Asked on BBC Radio 4’s Today if public sector workers should not expect a pay rise in line with inflation, Mr Clarke replied: “Correct.”

He told the programme: “In the current landscape of inflation at 9% bordering 10%, it is not a sustainable expectation that inflation can be matched in payoff…

“We cannot get into a world where we are chasing inflation expectations in that way because that is the surest way I can think of to bake in a repeat of the 1970s, which this Government is determined to prevent.”

He said that while “we enormously value the work of all of our public sector workers”, the “absolutely destructive” inflation of the 1970s could only be averted “if we have a realistic expectation now about pay”.

The Cabinet minister told Sky News: “The Government is trying in good faith to manage what is a very difficult balancing act between making sure that people get the pay awards they they deserve… this has to be set against the wider responsibility I have, the Government has, to the public finances to make sure they are sustainable”.

Meanwhile, Downing Street urged private businesses to “take heed” of soaring inflation.

The Prime Minister’s official spokesman said: “The Government wants a high wage, high growth economy and it’s not down to governments to dictate to private companies what wages they set. Everyone has different circumstances so a top down approach is not our position.

“But clearly the Government is taking heed of the economic situation in which we find ourselves and we expect private sector companies will do so as well.”

Pay rises “could be one of those areas” that stokes inflationary pressures further, he suggested.

Mr Clarke said pay awards for people employed by the Government that are currently being recommended by independent pay review bodies are “coming in at a sensible level”.

But, he added, “people have to recognise that if we’re going to forestall the evil of inflation – inflation destroys savings, it destroys growth, it damages any economy where it gets an endemic grip – then we’re going to have to show collective society-wide responsibility”.

He said: “I’m not going to pre-empt the results of the individual pay review bodies but I think it is unlikely that they will match the headline rate of inflation at the rates we’re now seeing”.

Mr Clarke was asked about Prime Minister Boris Johnson’s spokesman’s assertion earlier this year that Bank of England Governor Andrew Bailey’s plea for wage restraint was not the Government’s position.

He replied: “What a spokesperson has said is for them. I’m clear that the reality is that we are trying to manage the inflation difficulties that this economy and indeed the wider West is facing.”

Asked if a recession is inevitable and necessary to halt inflation, Mr Clarke told Times Radio: “We don’t expect a recession, it’s important not to talk ourselves into that mindset”.