BANK of England Governor Andrew Bailey told the Treasury Committee of the House of Commons this week that what the country needed now was people to give up their pay rises so that inflation could be brought under control. He literally could not have got his diagnosis of the problem we face or the prescription of the measures needed to tackle it more wrong if he had set out to do so.

What Bailey told MPs was that we face a crisis caused by inflation. He explained the causes. They are, he said, war and the resulting shortages of fuel and food, Covid and (although he was reluctant to admit it), Brexit. He got these reasons right. He was also right not to mention quantitative easing – or money creation by the Government - because there is no hint that it has created any of the issues we are now facing.

But having identified the causes of our crisis and after then admitting that he had control over none of these issues, he then insisted that the right response to the current inflation is to increase interest rates. This, he said was because the UK has a very tight labour market at present. This, he said, means that there is a risk that wages will rise in response to the current crisis, which in turn means that inflation might continue and stagflation might result. That’s a period of high inflation and low growth.

Bailey got this analysis hopelessly wrong. It is true that since the Covid pandemic began almost 500,000 people have left the UK labour market, altogether. Almost all of those who have done so are aged between 50 and 64, so that has nothing to do with Brexit, and might instead have everything to do with the end of Covid precautions in the workplace and the right to work from home. Many in this age group are thought to want protection because of clinical vulnerabilities. Their early retirement has had a knock-on effect. There are now more than 425,000 additional job vacancies in the UK that they are not filling. It’s very easy to see the link between these two statistics.

What it is impossible to work out is how Bailey’s attempts to force the real value of wages down by increasing interest rates will help this situation. If our inflation is caused by war, Covid and Brexit then it has nothing to do with the level of UK wage increases. In that case hitting working people, pensioners and others hard might suit Tory ideology, but it cannot solve the crisis that we face.

In that case his suggestion that people give up their pay rises does also not help, although Bailey has apparently set an example by refusing his recently offered pay rise. But then he is on £575,000 a year and turned down a rise of more than £8000. He could afford to do so. Almost no one else can because they cannot already make ends meet.

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Together, what these futile gestures and demands suggest is that Bailey really does not understand the inflation we are facing. He thinks that we have inflation caused by people having too much money to spend. The reality is that people cannot afford to buy the basics that they need because profiteering companies are increasing the prices of basic commodities, goods and services as they exploit the shortages created by war, Covid and Brexit.

As example, oil companies are seeing their profits rise dramatically whilst banks are also seeing their profits rise as interest rates increase. This is unsurprising. If people pay more for something whose costs of production have not increased, which is true with regard to the costs of extracting oil and gas and is also true for banks because interest-rate rises are not being passed on to savers, then it follows that someone must be making a lot more profit at the expense of those who have to pay the increased prices. This is the cause of the inflation that we are seeing.

Extraordinarily, what Bailey is demanding is that this situation should be made worse. He is insisting that people should not have pay rises and is trying instead to force the value of net pay down. But what this will do is increase the profits of those exploiting this crisis still further, whilst pushing millions of people into poverty. Instead of solving the crisis we face, Bailey is trying to make it very much worse.

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In that case three obvious things follow on. First, no one should accept a pay cut. Second, the Government should be telling the Bank of England to stop increasing interest rates. That, however, is not going to happen because the Bank of England’s logic of supporting profiteering companies instead of supporting people exactly reflects the wishes of the Westminster government. Third we need to see pay, pension and benefit increases to prevent real poverty.

The disaster capitalists, who seek to make profit for a few at cost to most people whenever a crisis occurs, are now in charge of the UK economy. We really can’t afford for them to be so. It’s going to cost us all a fortune whilst they are. The result is that the UK economic outlook is beginning to look very uncomfortable and unless we see pay rise soon everything is going to get very much worse.