A possible template for wage deals that helps the lowest paid

The summer months have meant that people across the UK will not have to pay for heating for another month or more.

But this is only a short and partial respite from the cost of living crisis, a key element of which is soaring fuel prices. Costs are a much wider challenge than that, given soaring inflation and the general rise in prices.

Employees and pensioners and benefit recipients are quite rightly expecting rises in their income which allow them to meet their increased outgoings.

This though raises a tricky balancing act for the Bank of England, the government, employers, employees and unions.

If all page deals are agreed at or around current inflation rate of 9%, perhaps to raise to 11%, then the inflation rate will be guaranteed to stay at that level. In fact it will probably push inflation higher than that because a widespread increase in pay will add to existing inflationary pressures, caused by various factors from Covid fiscal expansion to the Ukraine war.

Also, the pay rises would have been agreed in response to inflationary pressures that many economist say are temporary. Thus the increases in pay would not in fact have needed to be so high but would help create an inflationary spiral that could lead to much higher inflation — of perhaps 20% plus.

This could bring us back to the 1970s of stagflation, a stagnating economy and high inflation, and that would be a very bad outcome. For example it would destroy the savings of thrifty people with modest lump sums, accrued over a lifetime of hard work and would benefit less prudent people who borrowed more than they should have done.

The current UK NHS pay rise has come under fire for being as low as 4.5% in some areas. But parts of the deal are apt, such as the minimum £1,400 uplift, which equates to 9% for the lowest paid. This could be a useful template for pay deals in other sectors, because it helps the lowest paid, who are worst hit by the cost of living rises, but also reflects the wider need for a degree of moderation in wage settlements.