The governor of the Bank of England has come under fire from unions and earned a rebuke from 10 Downing Street for suggesting workers should not ask for big pay rises to help control inflation.
Andrew Bailey said he wanted to see “quite clear restraint” in the annual wage-bargaining process between staff and their employers to help prevent an upward spiral taking hold.
However, his comments drew a furious response from union leaders, as households face the worst hit to their living standards in three decades as soaring energy prices cause inflation to outstrip wage growth.
Sharon Graham, the general secretary of Unite, said workers did not cause Britain’s cost of living crisis and should not be asked to pay for it. “Why is it that every time there is a crisis, rich men ask ordinary people to pay for it?” she said.
“Enough is enough, we will be demanding that employers who can pay, do pay. Let’s be clear, pay restraint is nothing more than a call for a national pay cut.”
Bailey was paid £575,538, including pension, in his first year as the Bank’s governor from March 2020, more than 18 times the UK average for a full-time employee.
In a sign of a rift between the government and the Bank, the prime minister’s official spokesperson said pay restraint was not something he was calling for.
“We obviously want a high-wage, high-growth economy, and we want people’s wages to increase,” he said. “We recognise the challenge of the economic picture which Andrew Bailey set out; but obviously it’s not up for government to set wages or advise on the strategic direction or management of private companies.”
As the Bank raised interest rates to 0.5% on Thursday to tackle inflation, it warned household disposable incomes were on track to shrink by 2% this year, the biggest fall since comparable records began in 1990. It comes after the worst decade for average pay growth since the Napoleonic wars, with inflation-adjusted pay still below the pre-2008 financial crisis peak.
The governor’s call for restraint comes after Johnson last autumn criticised company bosses for wanting cheaper workers from the EU.
Bailey said restricting wage growth was vital for keeping a grip on inflation, telling the BBC’s Today programme it would help to stabilise the economy after the turbulence of Covid-19.
“I’m not saying nobody gets a pay rise, don’t get me wrong. But what I am saying is, we do need to see restraint in pay bargaining, otherwise it will get out of control,” he said.
Union leaders said Bailey’s comments were a “sick joke” as workers faced intense pressure to heat their homes and keep food on the table.
Gary Smith, the general secretary of the GMB trade union, said: “The nerve of Mr Bailey is scarcely credible. Telling the hardworking people who carried this country through the pandemic they don’t deserve a pay rise is outrageous.”
Despite urging restraint over pay, Bailey said it would take at least two years for high rates of inflation to stabilise. “It’s going to be a difficult period ahead, I readily admit, because we are already seeing and we’re going to see a reduction in real income.
“We’re going to start coming out of it in 2023. And two years from now we expect we’ll be back on to a more sort of stable, certainly inflation, position.”
Economists question whether workers have sufficient bargaining power to demand bumper pay rises, despite low rates of unemployment, after a steady decline in trade union membership since the 1970s when big pay settlements contributed to higher rates of inflation.
Kate Bell, the head of economics at the TUC, said inflation was being driven by rising energy costs, not pay demands. “Working people need a pay rise now. And the best way to get one is to join a union,” she said.
Threadneedle Street said on Thursday that inflation could peak at about 7.25% in April, up from the current 30-year high of 5.4%. The central bank is set a mandate by the government to target inflation at 2%.
Bailey’s comments drew criticism from across the political spectrum. Julian Jessop, an economics fellow at the free-market Institute for Economic Affairs, said that loose monetary policy set by central banks should be blamed for high inflation rather than workers.
“People should ask for the biggest pay rise they can get: wages are a relative price, like any other, and should be left to the markets,” he said.
David Blanchflower, a member of the Bank’s monetary policy committee between 2006 and 2009, who is critical of the central bank for raising rates, said Bailey’s comments were “clueless”.
“Just as real wages go strongly negative, clueless Bailey tells workers it is their fault and need to get lower pay, even though he won’t – public sector workers have had their pay frozen for a decade of Tory rule. What kind of a world is this? Time for workers to tell him to get lost,” he said.
Much of the rise in inflation is though outside the Bank’s control, caused by soaring prices on wholesale energy markets and disruption to global supply chains. However, Bailey said he was worried that expectations for high inflation would fuel bigger wage demands, embedding inflationary pressures in a wage-price spiral.
The Bank forecasts wage growth, before taking account of inflation, will rise to about 5% later this year amid record job vacancies and low rates of employment.
“I’m not saying don’t give your staff a pay rise, this is about the size of it frankly. Show restraint,” Bailey said.